1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)
[ X ]    ANNUAL  REPORT  PURSUANT  TO  SECTION 13  OR 15(d)  OF  THE  SECURITIES
         EXCHANGE ACT OF 1934

For the fiscal year ended                   December 29, 2002
                          ------------------------------------------------------

                                       OR

[    ]   TRANSITION  REPORT  PURSUANT  TO SECTION 13  OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from                         to
                               -----------------------    ----------------------

Commission File Number:    000-17962
                       -----------------

                         Applebee's International, Inc.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                    43-1461763
  -------------------------------           ------------------------------------
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)

          4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207
 -------------------------------------------------------------------------------
              (Address of principal executive offices and zip code)

                                 (913) 967-4000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common  Stock,   par
                                                            value $.01 per share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                                        Yes X   No
                                           ---    ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined by Rule 12b-2 of the Act).
                                        Yes X   No
                                           ---    ---

The aggregate market value of the voting and non-voting common stock equity held
by  non-affiliates  of the  registrant  as of the last day of the second  fiscal
quarter ended June 30, 2002 was  $1,273,824,875  based on the closing sale price
on June 28, 2002.

The number of shares of the  registrant's  common stock  outstanding as of March
10, 2003 was 55,221,320.

                       DOCUMENTS INCORPORATED BY REFERENCE

Proxy  statement to be filed  pursuant to  Regulation  14A under the  Securities
Exchange Act of 1934 is incorporated into Part III hereof.

                                       1

<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                    FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 29, 2002
                                      INDEX
<TABLE>
<CAPTION>

                                                                                                               Page
PART I

<S>                                                                                                           <C>
Item 1.         Business................................................................................        3

Item 2.         Properties..............................................................................       12

Item 3.         Legal Proceedings.......................................................................       14

Item 4.         Submission of Matters to a Vote of Security Holders.....................................       14

PART II

Item 5.         Market for Registrant's Common Equity and
                      Related Stockholder Matters.......................................................       15

Item 6.         Selected Financial Data.................................................................       16

Item 7.         Management's Discussion and Analysis of
                      Financial Condition and Results of Operations.....................................       17

Item 8.         Financial Statements and Supplementary Data.............................................       26

Item 9.         Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure............................................       26

PART III

Item 10.        Directors and Executive Officers of the Registrant......................................       27

Item 11.        Executive Compensation..................................................................       27

Item 12.        Security Ownership of Certain Beneficial Owners and Management..........................       27

Item 13.        Certain Relationships and Related Transactions..........................................       27

Item 14.        Controls and Procedures.................................................................       27

PART IV

Item 15.        Exhibits and Reports on Form 8-K........................................................       28

Signatures..............................................................................................       29

Certifications..........................................................................................       31

</TABLE>

                                       2
<PAGE>


                                     PART I

Item 1.       Business

General

References  to  "Applebee's,"  "we,"  "us,"  and  "our"  in  this  document  are
references  to  Applebee's  International,  Inc.  and its  subsidiaries  and any
predecessor companies of Applebee's  International,  Inc. We develop,  franchise
and operate casual dining  restaurants  under the name "Applebee's  Neighborhood
Grill & Bar." With nearly 1,500  restaurants  and $3.24  billion in system sales
for the fiscal year ended December 29, 2002, Applebee's Neighborhood Grill & Bar
is the largest  casual  dining  concept in  America,  both in terms of number of
restaurants  and market  share.  Applebee's  International,  Inc.  maintains  an
Internet website address at www.applebees.com.  We make available free of charge
through our website our annual  report on Form 10-K,  quarterly  reports on Form
10-Q,  current  reports on Form 8-K, and all amendments to those reports as soon
as they are reasonably  available after these materials are electronically filed
with or furnished to the Securities and Exchange Commission.

We opened our first restaurant in 1986. We initially  developed and operated six
restaurants as a franchisee of the Applebee's  Neighborhood Grill & Bar Division
(the  "Applebee's  Division") of an indirect  subsidiary of W.R.  Grace & Co. In
March 1988, we acquired substantially all the assets of our franchisor.  When we
acquired  the  Applebee's  Division,  it  operated  13  restaurants  and had ten
franchisees, including us, operating 41 franchise restaurants.

As of December 29, 2002,  there were 1,496 Applebee's  restaurants.  Franchisees
operated 1,139 of these  restaurants and 357 restaurants were company  operated.
The  restaurants  were located in 49 states and eight  international  countries.
During 2002, 107 new restaurants were opened, including 81 franchise restaurants
and 26 company restaurants.

We acquired the Rio Bravo Cantina chain of Mexican casual dining restaurants and
four  specialty  restaurants in March 1995. In April 1999, we completed the sale
of the Rio Bravo Cantina concept and our four specialty restaurants. At the time
of divestiture,  we operated 40 Rio Bravo  restaurants and franchisees  operated
the remaining 25 restaurants.

Although we may acquire a new concept in the future,  our current strategy is to
focus on the Applebee's  concept. We currently expect that the Applebee's system
will encompass at least 2,300 restaurants in the United States.



                                       3

<PAGE>


The following table sets forth certain unaudited financial information and other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:

<TABLE>
<CAPTION>

                                                                             Fiscal Year Ended
                                                            -----------------------------------------------------
                                                             December 29,       December 30,       December 31,
                                                                2002              2001               2000
                                                           -----------------  ----------------  -----------------
<S>                                                         <C>               <C>                <C>
   Number of restaurants:
        Company:
            Beginning of year............................            310               285                262
            Restaurant openings..........................             26                25                 25
            Restaurant closings..........................             --                --                 (2)
            Restaurants acquired from franchisees........             21                --                 --
                                                           -----------------  ----------------  -----------------
            End of year..................................            357               310                285
                                                           -----------------  ----------------  -----------------
        Franchise:
            Beginning of year............................          1,082             1,001                906
            Restaurant openings..........................             81                84                100
            Restaurant closings..........................             (3)               (3)                (5)
            Restaurants acquired from franchisees........            (21)               --                 --
                                                           -----------------  ----------------  -----------------
            End of year..................................          1,139             1,082              1,001
                                                           -----------------  ----------------  -----------------
        Total:
            Beginning of year............................          1,392             1,286              1,168
            Restaurant openings..........................            107               109                125
            Restaurant closings..........................             (3)               (3)                (7)
                                                           -----------------  ----------------  -----------------
            End of year..................................          1,496             1,392              1,286
                                                           =================  ================  =================

   Weighted average weekly sales per restaurant:
            Company......................................    $    43,019       $    42,660        $    42,183
            Franchise....................................    $    43,823       $    42,241        $    41,137
            Total........................................    $    43,641       $    42,334        $    41,370
   Change in comparable restaurant sales(1):
            Company......................................            1.8%              2.5%               1.8%
            Franchise....................................            3.6%              3.0%               1.6%
            Total........................................            3.2%              2.9%               1.7%

   Total system sales (in thousands).....................    $ 3,243,989       $ 2,926,288        $ 2,668,539



</TABLE>










(1) When computing comparable restaurant sales, restaurants open for at least 18
    months are compared from period to period.




                                        4
<PAGE>





The Applebee's System

Concept.  Each  Applebee's  restaurant is designed as an  attractive,  friendly,
neighborhood  establishment  featuring  moderately priced, high quality food and
beverage  items,  table service and a comfortable  atmosphere.  Our  restaurants
appeal to a wide range of customers including young adults,  senior citizens and
families with young children.

Applebee's  also offers its customers the convenience of carry-out  service.  In
2002,  we  initiated  phase one of a new two phase  "To Go"  program.  Phase one
included  the  use of  standardized  state-of-the-art  packaging,  interior  and
exterior signage and a focused training  program.  The second phase will include
the  additional  convenience  of  curbside  service,  and  will  be  implemented
throughout the system during 2003 and 2004.

We have set  certain  specifications  for the  design  of our  restaurants.  Our
restaurants are primarily located in free-standing  buildings, end caps of strip
shopping  centers,  and  shopping  malls.  Each  restaurant  has a bar, and many
restaurants  offer  patio  seating.  The decor of each  restaurant  incorporates
artifacts and  memorabilia  such as old movie posters,  musical  instruments and
sports  equipment.  Restaurants also frequently  display  photographs,  magazine
articles and newspaper  articles  highlighting  local history and personalities.
These  items give each  restaurant  an  individual,  neighborhood  identity.  In
addition, we require that each restaurant be remodeled every six years to embody
the design elements of the current prototype.

Menu. Each restaurant  offers a diverse menu of high quality,  moderately priced
food and beverage  items  consisting  of  traditional  favorites  and  signature
dishes.  The restaurants  feature a broad selection of entrees,  including beef,
chicken,  pork,  seafood and pasta items  prepared in a variety of cuisines,  as
well  as  appetizers,   salads,  sandwiches,   specialty  drinks  and  desserts.
Substantially  all restaurants  offer beer, wine,  liquor and premium  specialty
drinks.  During 2002,  alcoholic  beverages accounted for 13.5% of company owned
restaurant sales.

Restaurant  Operations.  We and  our  franchisees  operate  all  restaurants  in
accordance with uniform operating standards and specifications.  These standards
pertain to the quality and  preparation of menu items,  selection of menu items,
maintenance and cleanliness of premises,  and employee  conduct.  We develop all
standards and specifications  with input from franchisees,  and they are applied
on a system-wide basis.

Training.  We have an operations  training course for general managers,  kitchen
managers  and  other  restaurant  managers.  The  course  consists  of  in-store
task-oriented  training  and  formal   administrative,   customer  service,  and
financial training.  We ensure that new restaurants comply with our standards by
providing  training  programs and systems to conduct  hands-on  training for all
restaurant  employees.  We also provide  periodic  training  for our  restaurant
managers regarding various topics,  generally through classroom  instruction and
video presentations.

Advertising.  We have  historically  concentrated  our advertising and marketing
efforts  primarily  on  food-specific  promotions.  We  advertise on a national,
regional and local basis, utilizing primarily television, radio and print media.
In 2002,  approximately  4.1% of sales  for  company  restaurants  was  spent on
advertising. This amount includes contributions to the national advertising pool
which  develops  and  funds  the  specific  national  promotions.  We focus  the
remainder of our  advertising  expenditures  on local  advertising in areas with
company owned restaurants.

                                       5
<PAGE>

Purchasing.  Maintaining  high food  quality and  system-wide  consistency  is a
central focus of our purchasing  program.  We mandate quality  standards for all
products  used in the  restaurants,  and we maintain a limited  list of approved
suppliers  from which we and our  franchisees  must select.  We have  negotiated
purchasing agreements with most of our approved suppliers which result in volume
discounts  for us and our  franchisees.  Additionally,  we purchase and maintain
inventories of certain specialty products to assure sufficient  supplies for the
system.  In 2001, we began a new multi-year  supply chain management  initiative
designed to  leverage  our size,  improve  sourcing  of  products  and  optimize
distribution.

Company Restaurants

Company  Restaurant  Openings and  Acquisitions.  Our  expansion  strategy is to
cluster restaurants in targeted markets,  thereby increasing consumer awareness.
Our strategy  enables us to take  advantage  of  operational,  distribution  and
advertising efficiencies. Our development experience indicates that when we open
multiple restaurants within a particular market, our market share increases.

In order to maximize overall system growth,  our expansion strategy through 1992
emphasized franchise  arrangements with experienced,  successful and financially
capable restaurant operators. We continue to expand the Applebee's system across
the United States  through  franchise  operations,  but  beginning in 1992,  our
growth   strategy  also  included   increasing   the  number  of  company  owned
restaurants.  We have tried to  achieve  this goal in two ways.  First,  we have
developed  strategic  territories.  Second,  when  franchises  are available for
purchase under acceptable financial terms, we have selectively acquired existing
franchise   restaurants   and  terminated  the  selling   franchisee's   related
development rights. Using this strategy,  we have opened 260 new restaurants and
acquired 102  franchise  restaurants  over the last ten years and have  expanded
from a total of 31 company owned or operated restaurants as of December 27, 1992
to a total of 357 as of December 29, 2002. In addition, as part of our portfolio
management  strategy,  we have sold 26 restaurants  to  franchisees  during this
ten-year period.

We  opened  26  new  Applebee's  restaurants  in  2002  and  anticipate  opening
approximately  25 new Applebee's  restaurants in 2003. We may open more or fewer
restaurants  depending  upon the  availability  of  appropriate  new sites.  The
following table shows the areas where our company restaurants were located as of
December 29, 2002:


<TABLE>
<CAPTION>



                                                Area
               -----------------------------------------------------------------------
              <S>                                                                               <C>
               New England (includes Maine, Massachusetts, New Hampshire, New York,
               Rhode Island and Vermont)..............................................            58
               Detroit/Southern Michigan..............................................            57
               Minneapolis/St. Paul, Minnesota........................................            49
               North/Central Texas....................................................            41
               Virginia...............................................................            39
               St. Louis, Missouri/Illinois...........................................            27
               Kansas City, Missouri/Kansas...........................................            27
               Washington, D.C........................................................            21
               Las Vegas/Reno, Nevada.................................................            13
               Atlanta, Georgia.......................................................             9
               Albuquerque, New Mexico................................................             8
               San Diego/Southern California..........................................             7
               Ontario, Canada........................................................             1
                                                                                      -------------------
                                                                                                 357
                                                                                      ===================
</TABLE>

                                       6
<PAGE>


Restaurant  Operations.  The  staff  for a typical  restaurant  consists  of one
general  manager,  one kitchen  manager,  two or three  assistant  managers  and
approximately  60 hourly  employees.  All managers of company owned  restaurants
receive a salary and performance  bonus based on restaurant  sales,  profits and
adherence to our  standards.  As of December 29, 2002,  we employed ten Regional
Vice Presidents of Operations/Directors of Operations and 54 Area Directors. The
Area Directors'  duties include regular  restaurant visits and inspections which
ensure  the  ongoing   maintenance   of  our  standards  of  quality,   service,
cleanliness,  value,  and  courtesy.  In  addition to  providing  a  significant
contribution  to  revenues  and  operating   earnings,   we  use  company  owned
restaurants  for many  purposes  which are  integral to the  development  of the
entire  system,  including  testing of new menu items and  training of franchise
restaurant managers and operating personnel.

The Applebee's Franchise System

Franchise  Territory  and  Restaurant  Openings.  We  currently  have  exclusive
franchise  arrangements  with 66 franchise  groups,  including 15  international
franchisees.  We  have  generally  selected  franchisees  that  are  experienced
multi-unit  restaurant  operators who have been  involved with other  restaurant
concepts.  Our franchisees operate Applebee's restaurants in 42 states and eight
international  countries.  We have assigned the vast majority of all territories
in all states except Hawaii or have designated them for company development.

As of December 29, 2002,  there were 1,139  franchise  restaurants.  Franchisees
opened 100  restaurants  in 2000, 84  restaurants in 2001, and 81 restaurants in
2002. We anticipate between 70 to 80 franchise restaurant openings in 2003.

Development  of  Restaurants.  We make  available  to  franchisees  the physical
specifications for a typical restaurant,  and we retain the right to prohibit or
modify the use of any plan.  Each  franchisee is  responsible  for selecting the
site for each  restaurant  within  their  territory.  We assist  franchisees  in
selecting  appropriate  sites, and any selection made by a franchisee is subject
to our  approval.  We also  conduct a physical  inspection,  review any proposed
lease or purchase agreement, and make available demographic studies.

Domestic  Franchise  Arrangements.  Each  franchise  arrangement  consists  of a
development agreement and separate franchise agreements.  Development agreements
grant the  exclusive  right to develop a number of  restaurants  in a designated
geographical area. The term of a domestic development  agreement is generally 20
years.  The  franchisee  enters  into a  separate  franchise  agreement  for the
operation of each restaurant.  Each agreement has a term of 20 years and permits
renewal for up to an additional 20 years in accordance  with the terms contained
in the then current  franchise  agreement  (including  the then current  royalty
rates and advertising fees) and upon payment of an additional franchise fee.

For each  restaurant  developed,  a franchisee is currently  obligated to pay an
initial  franchisee fee (which  typically  ranges from $30,000 to $35,000) and a
royalty  fee  equal  to 4% of the  restaurant's  monthly  gross  sales.  We have
executed  agreements  with a majority  of our  franchisees  which  maintain  the
existing  royalty fees of 4% and extend the current  franchise  and  development
agreements  until  January  1,  2020.  The  revised  agreements   establish  new
restaurant  development  obligations over the next several years.  These revised
agreements contain  provisions which allow for the continued  development of the
Applebee's  concept  and  support our  long-term  expectation  of at least 2,300
restaurants  in the United States.  The terms,  royalties and  advertising  fees
under a limited  number of franchise  agreements  and the  franchise  fees under
older development agreements vary from the currently offered arrangements.

                                       7
<PAGE>


Advertising.  We currently  require domestic  franchisees to contribute 2.25% of
gross  sales to the  national  advertising  pool.  This amount is in addition to
their required spending of at least 1.5% of gross sales on local advertising and
promotional activities.  Franchisees also promote the opening of each restaurant
and we reimburse the franchisee for 50% of the out-of-pocket opening advertising
expenditures,  subject  to  certain  conditions.  The  maximum  amount  we  will
reimburse for these expenditures is $2,500. Under our franchise  agreements,  we
can increase the combined  amount of the advertising fee and the amount required
to be spent on local  advertising and promotional  activities to a maximum of 5%
of gross sales.

Training and Support. We provide ongoing advice and assistance to franchisees in
connection with the operation and management of each restaurant through training
sessions,  meetings,  seminars,  on-premises  visits,  and by  written  or other
material.  We also  assist  franchisees  with  business  planning,  development,
technology and human resource efforts.

Operations  Quality  Control.  We  continuously   monitor  franchise  restaurant
operations,  principally through our full-time  franchise  consultants (25 as of
December 29,  2002).  We make both  scheduled  and  unannounced  inspections  of
restaurants  to  ensure  that  only  approved  products  are in use and that our
prescribed operations practices and procedures are being followed.  During 2002,
representatives  made an  average  of  approximately  two  visits to each of our
franchise restaurants during which they conducted an inspection and consultation
in the  restaurant.  We have the right to  terminate a franchise if a franchisee
does not operate and maintain a restaurant in accordance with our requirements.

Franchise  Business  Council.  We maintain a Franchise  Business  Council  which
provides us with advice about  operations,  marketing,  product  development and
other  aspects  of  restaurant  operations  for the  purpose  of  improving  the
franchise  system.  As of December  29, 2002,  the  Franchise  Business  Council
consisted of eight  franchisee  representatives  and three members of our senior
management. Two franchisee representatives are permanent members, one franchisee
representative  must be a  franchisee  with  five or less  restaurants,  and any
franchisee  who operates  10% or more of the total number of system  restaurants
(currently none) is reserved a seat.  Franchisees elect the remaining franchisee
representatives annually.

International   Franchise  Agreements.   We  continue  to  pursue  international
franchising of the Applebee's  concept under a long-term  strategy of controlled
expansion.  This  strategy  includes  seeking  qualified  franchisees  with  the
resources  to  open  multiple  restaurants  in each  territory  and  those  with
familiarity  with the specific  local  business  environment.  We are  currently
focusing  on  international   franchising  in  Canada,  Latin  America  and  the
Mediterranean/Middle  East.  In  this  regard,  we  currently  have  development
agreements  with  15   international   franchisees.   Franchisees   operated  44
international  restaurants  as of  December  29,  2002.  The  success of further
international  expansion will depend on, among other things, local acceptance of
the  Applebee's  concept and our ability to attract  qualified  franchisees  and
operating personnel. We must also comply with the regulatory requirements of the
local  jurisdictions,   and  supervise   international   franchisee   operations
effectively.

Franchise  Financing.  Although  financing  is the  sole  responsibility  of the
franchisee,  we  make  available  to  franchisees  information  about  financial
institutions  interested in financing the costs of  restaurant  development  for
qualified franchisees.  None of these financial institutions is our affiliate or
agent,  and we have no control  over the terms or  conditions  of any  financing
arrangement offered by these financial institutions.  Under a previous franchise
financing  program,  we  provided  a limited  guaranty  of loans made to certain
franchisees.

                                       8
<PAGE>

Competition

We expect competition in the casual dining segment of the restaurant industry to
remain intense with respect to price, service,  location,  concept, and the type
and quality of food.  There is also intense  competition  for real estate sites,
qualified  management  personnel,  and hourly  restaurant staff. Our competitors
include  national,  regional and local chains,  as well as local  owner-operated
restaurants.  We have a number of  well-established  competitors.  Some of these
companies have been in existence  longer than we have, and therefore they may be
better established in the markets where our restaurants are or may be located.

Service Marks

We own the rights to the "Applebee's  Neighborhood  Grill & Bar(R)" service mark
and  certain  variations  thereof  in the United  States and in various  foreign
countries.  We are aware of names and marks similar to our service marks used by
third parties in certain  limited  geographical  areas. We intend to protect our
service marks by appropriate legal action where and when necessary.

Government Regulation

Our restaurants are subject to numerous federal, state, and local laws affecting
health,  sanitation and safety  standards.  Our  restaurants are also subject to
state and local licensing  regulation of the sale of alcoholic  beverages.  Each
restaurant  is  required  to  obtain   appropriate   licenses  from   regulatory
authorities  allowing it to sell liquor,  beer,  and wine.  We also require that
each restaurant obtain food service licenses from local health authorities.  Our
licenses  to sell  alcoholic  beverages  must  be  renewed  annually  and may be
suspended or revoked at any time for cause.  This would include violation of any
law  or  regulation  pertaining  to  alcoholic  beverage  control  by us or  our
employees.  Among such laws are those  regulating  the minimum age of patrons or
employees,  advertising,  wholesale purchasing, and inventory control. If one of
our restaurants failed to maintain its license to sell alcohol or serve food, it
would significantly harm the success of that restaurant. In order to reduce this
risk,  we operate each  restaurant in accordance  with  standardized  procedures
designed to facilitate compliance with all applicable codes and regulations.

Our  employment  practices  are  governed  by  various  governmental  employment
regulations. These include minimum wage, overtime, immigration, family leave and
working condition regulations.

We are subject to a variety of federal and state laws governing  franchise sales
and the franchise  relationship.  In general,  these laws and regulations impose
certain disclosure and registration requirements prior to the sale and marketing
of franchises. Recent decisions of several state and federal courts and recently
enacted or proposed  federal and state laws demonstrate a trend toward increased
protection of the rights and interests of franchisees against franchisors.  Such
decisions  and laws may limit the  ability of  franchisors  to  enforce  certain
provisions  of  franchise   agreements  or  to  alter  or  terminate   franchise
agreements.  Due to the scope of our  business and the  complexity  of franchise
regulations,  we may encounter minor compliance  issues from time to time. We do
not  believe,  however,  that any of these  issues will have a material  adverse
effect on our business.

                                       9
<PAGE>

Under certain court  decisions and statutes,  owners of restaurants  and bars in
some  states  in which we own or  operate  restaurants  may be held  liable  for
serving  alcohol to intoxicated  customers whose  subsequent  conduct results in
injury  or death  to a third  party.  We  cannot  guarantee  that we will not be
subject to such liability. We do believe,  however, that our insurance presently
provides adequate coverage for such liability.

Employees

As of December 29, 2002,  we employed  approximately  23,500 full and  part-time
employees.  Of those,  approximately  480 were corporate  personnel,  1,420 were
restaurant  managers  or  managers  in  training  and 21,600  were  employed  in
non-management  full and part-time  restaurant  positions.  Of the 480 corporate
employees,  approximately 170 were in management  positions and 310 were general
office employees, including part-time employees.

We consider  our  employee  relations  to be good.  Most  employees,  other than
restaurant  management and corporate personnel,  are paid on an hourly basis. We
believe that we provide working conditions and wages that compare favorably with
those of our competition. We have never experienced a work stoppage due to labor
difficulty,  and  our  employees  are not  covered  by a  collective  bargaining
agreement.

Executive Officers of the Registrant

Our executive officers as of December 29, 2002 are shown below.

<TABLE>
<CAPTION>

                  Name                Age                                    Position
    --------------------------------- ---    -----------------------------------------------------------------------
<S>                                  <C>    <C>
    Lloyd L. Hill.................... 58     Chairman  of the  Board of  Directors,  Chief  Executive  Officer  and
                                                President
    George D. Shadid................. 48     Executive  Vice  President  and  Chief  Operating   Officer  (resigned
                                                effective January 12, 2003), and Member of the Board of Directors
    Steven K. Lumpkin................ 48     Executive Vice President, Chief Financial Officer and Treasurer
    David L. Goebel.................. 52     Executive Vice President of Operations
    John C. Cywinski................. 40     Senior Vice President and Chief Marketing Officer
    Louis A. Kaucic.................. 51     Senior Vice President and Chief People Officer
    Larry A. Cates................... 54     President of International Division
    David R. Parsley................. 56     Senior Vice President of Purchasing and Distribution
    Carin L. Stutz................... 46     Senior Vice President of Company Operations

</TABLE>

Lloyd L. Hill was elected a director  in August  1989.  Mr.  Hill was  appointed
Executive  Vice  President  and Chief  Operating  Officer  in January  1994.  In
December 1994, he assumed the role of President in addition to his role as Chief
Operating  Officer.  Effective  January 1, 1997,  Mr.  Hill  assumed the role of
Co-Chief Executive Officer. In January 1998, he assumed the full duties of Chief
Executive  Officer.  In May 2000, Mr. Hill was elected  Chairman of the Board of
Directors.  Prior to joining  Applebee's,  he served as  President  of  Kimberly
Quality  Care,  a home health care and nurse  personnel  staffing  company  from
December 1989 to December 1993,  where he also served as a director from 1988 to
1993, having joined that organization in 1980.

                                       10

<PAGE>

George D. Shadid was employed by Applebee's in August 1992, and served as Senior
Vice  President  and Chief  Financial  Officer  until  January  1994 when he was
promoted to Executive Vice President and Chief Financial Officer. He also became
Treasurer in March 1995. In March 1999,  Mr.  Shadid was elected a director.  In
March 2002, he assumed the position of Chief Operating Officer. In January 2003,
Mr.  Shadid  resigned as an executive  officer of  Applebee's.  Prior to joining
Applebee's,  he served as Corporate  Controller of  Gilbert/Robinson,  Inc. from
1985 to 1987,  at which  time he was  promoted  to Vice  President,  and in 1988
assumed the position of Vice  President and Chief  Financial  Officer,  which he
held until  August  1992.  From 1976 until  1985,  Mr.  Shadid was  employed  by
Deloitte & Touche LLP.

Steven K. Lumpkin was employed by  Applebee's  in May 1995 as Vice  President of
Administration.  In January  1996,  he was promoted to Senior Vice  President of
Administration.  In  November  1997,  he assumed  the  position  of Senior  Vice
President of Strategic Development and in January 1998 was promoted to Executive
Vice President of Strategic Development.  He was named Chief Development Officer
in March  2001.  In March  2002,  Mr.  Lumpkin  assumed  the  position  of Chief
Financial Officer and Treasurer.  Prior to joining Applebee's, Mr. Lumpkin was a
Senior Vice President with a division of the Olsten Corporation, Olsten Kimberly
Quality Care from July 1993 until January 1995.  From June 1990 until July 1993,
Mr.  Lumpkin  was an  Executive  Vice  President  and a member  of the  board of
directors of Kimberly  Quality  Care.  From  January  1978 until June 1990,  Mr.
Lumpkin was employed by Price  Waterhouse  LLP,  where he served as a management
consulting partner and certified public accountant.

David L. Goebel was  employed  by  Applebee's  in  February  2001 as Senior Vice
President of Franchise Operations.  In December 2002, Mr. Goebel was promoted to
the  position  of  Executive  Vice  President  of  Operations.  Prior to joining
Applebee's,  Mr. Goebel headed a management company that provided consulting and
strategic  planning  services to various  businesses from April 1998 to February
2001. Prior to 1998, he was a franchise  principal with an early developer group
of the Boston Market  concept.  Mr. Goebel's  business  experience also includes
positions  as Vice  President  of  Business  Development  for  Rent-a-Center  (a
subsidiary  of Thorn,  EMI) and Vice  President of  Operations  for Ground Round
restaurants.

John C.  Cywinski  was  employed  by  Applebee's  in July  2001 as  Senior  Vice
President and Chief Marketing Officer. Prior to joining Applebee's, Mr. Cywinski
was employed as Vice President of Brand Strategy for McDonald's Corporation from
April 1999 to July 2001.  From October 1996 to April 1999,  he was  President of
Buena Vista Pictures  Marketing,  the motion picture division of The Walt Disney
Company.  Prior to 1996,  Mr.  Cywinski held various  positions with Burger King
Corporation.

Louis A.  Kaucic was  employed  by  Applebee's  in October  1997 as Senior  Vice
President of Human  Resources.  He was named Chief People Officer in March 2001.
Prior to joining  Applebee's,  Mr. Kaucic was Vice President of Human  Resources
and later  promoted  to Senior Vice  President  of Human  Resources  with Unique
Casual Restaurants,  Inc., which operated several restaurant concepts, from July
1992 until  October  1997.  From 1982 to 1992, he was employed by Pizza Hut in a
variety of positions,  including  Director of Employee  Relations.  From 1978 to
1982, Mr. Kaucic was employed by Kellogg's as an Industrial Relations Manager.

Larry A.  Cates was  employed  by  Applebee's  in May 1997 as  President  of the
International  Division.  Prior to joining Applebee's,  Mr. Cates spent 17 years
with PepsiCo  Restaurants  developing  international  markets for that company's
Pizza  Hut,  Taco Bell and KFC  brands.  From 1994 to 1997,  Mr.  Cates was Vice
President of Franchising and Development - Europe/Middle  East, and from 1990 to
1994,  he was Chief  Executive  Officer of Pizza Hut UK, Ltd.,  a joint  venture
between PepsiCo Restaurants and Whitbread.

                                       11
<PAGE>

David R.  Parsley  was  employed  by  Applebee's  in April  2000 as Senior  Vice
President of  Purchasing  and  Distribution.  Prior to joining  Applebee's,  Mr.
Parsley held  several  positions  with  Prandium,  Inc.,  operator of El Torito,
Chi-Chi's and Koo Koo Roo,  from  November 1996 to April 2000,  most recently as
Senior Vice President of Quality and Supply Chain  Management.  He has also held
purchasing   positions  with  The  Panda   Management   Company,   Carl  Karcher
Enterprises, Proficient Food Company, Inc., and Baxter Healthcare Corporation.

Carin L. Stutz was  employed  by  Applebee's  in  November  1999 as Senior  Vice
President  of Company  Operations.  Prior to joining  Applebee's,  Ms. Stutz was
Division Vice  President with Wendy's  International  from July 1994 to November
1999. From 1993 to 1994, she was Regional Operations Vice President for Sodexho,
USA. From 1990 to 1993, Ms. Stutz was employed by  Nutri/System,  Inc. as a Vice
President of Corporate Operations.  Prior to 1990, Ms. Stutz was employed for 12
years with Wendy's International.

Item 2.       Properties

As of December 29, 2002,  we owned and operated 357  restaurants.  Of these,  we
leased the land and  building  for 64 sites,  owned the  building and leased the
land for 143 sites,  and owned the land and building for 150 sites. In addition,
as of December 29, 2002, we owned 2 sites for future  development of restaurants
and had entered into 12 lease  agreements for  restaurant  sites we plan to open
during 2003. Our leases  generally have an initial term of 15 to 20 years,  with
renewal terms of 5 to 20 years,  and provide for a fixed rental plus, in certain
instances, percentage rentals based on gross sales.

We own an 80,000 square foot office building in Overland Park,  Kansas,  located
in the  Kansas  City  metropolitan  area,  in which our  corporate  offices  are
headquartered.  In December 2002, we entered into a lease agreement for a 23,000
square foot office  building in  Overland  Park,  Kansas,  which will be used as
additional  corporate office space beginning in 2003. We also lease office space
in certain regions in which we operate restaurants.

Under our  franchise  agreements,  we have  certain  rights to gain control of a
restaurant  site in the  event of  default  under  the  lease  or the  franchise
agreement.

The  following  table  sets  forth  the 49 states  and the  eight  international
countries  in  which  Applebee's  are  located  and the  number  of  restaurants
operating in each state or country as of December 29, 2002:


                                       12
<PAGE>

<TABLE>
<CAPTION>



                                                                 Number of Restaurants
                                                  -----------------------------------------------------
                    State or Country                 Company            Franchise          Total System
            ----------------------------------    --------------      --------------     --------------

<S>                                                     <C>              <C>                 <C>
            Domestic:
            --------
            Alabama........................               --                 28                  28
            Alaska.........................               --                  2                   2
            Arizona........................               --                 24                  24
            Arkansas.......................               --                  7                   7
            California.....................                7                 73                  80
            Colorado.......................               --                 28                  28
            Connecticut....................               --                 10                  10
            Delaware.......................                2                  4                   6
            Florida........................               --                 86                  86
            Georgia........................                9                 55                  64
            Idaho..........................               --                  8                   8
            Illinois.......................                7                 44                  51
            Indiana........................               --                 55                  55
            Iowa...........................               --                 23                  23
            Kansas.........................               12                 16                  28
            Kentucky.......................               --                 31                  31
            Louisiana......................               --                 17                  17
            Maine..........................                7                 --                   7
            Maryland.......................                9                 10                  19
            Massachusetts..................               29                 --                  29
            Michigan.......................               57                 14                  71
            Minnesota......................               45                  2                  47
            Mississippi....................               --                 14                  14
            Missouri.......................               35                 11                  46
            Montana........................               --                  7                   7
            Nebraska.......................               --                 16                  16
            Nevada.........................               13                 --                  13
            New Hampshire..................               12                 --                  12
            New Jersey.....................               --                 31                  31
            New Mexico.....................                8                  5                  13
            New York.......................                1                 73                  74
            North Carolina.................                1                 45                  46
            North Dakota...................               --                  8                   8
            Ohio...........................               --                 77                  77
            Oklahoma.......................               --                 15                  15
            Oregon.........................               --                 14                  14
            Pennsylvania...................                1                 46                  47
            Rhode Island...................                7                 --                   7
            South Carolina.................               --                 42                  42
            South Dakota...................               --                  4                   4
            Tennessee......................               --                 44                  44
            Texas..........................               41                 27                  68
            Utah...........................               --                 11                  11
            Vermont........................                2                 --                   2
            Virginia.......................               46                 --                  46
            Washington.....................               --                 21                  21
            West Virginia..................                1                 12                  13
            Wisconsin......................                4                 31                  35
            Wyoming........................               --                  4                   4
                                                  --------------      --------------     --------------
            Total Domestic.................              356              1,095               1,451
                                                  --------------      --------------     --------------

</TABLE>


                                       13
<PAGE>


<TABLE>
<CAPTION>



                                                                 Number of Restaurants
                                                  -----------------------------------------------------
                    State or Country                 Company            Franchise        Total System
            ----------------------------------    --------------      --------------     --------------
            International:
            -------------
<S>                                                     <C>              <C>                 <C>
            Canada.........................                1                 14                  15
            Egypt..........................               --                  1                   1
            Greece.........................               --                  5                   5
            Honduras.......................               --                  2                   2
            Kuwait.........................               --                  2                   2
            Mexico.........................               --                 14                  14
            Netherlands....................               --                  5                   5
            Qatar..........................               --                  1                   1
                                                  --------------      --------------     --------------
            Total International............                1                 44                  45
                                                  --------------      --------------     --------------
                                                         357              1,139               1,496
                                                  ==============      ==============     ==============
</TABLE>

Item 3.       Legal Proceedings

We are  involved  in various  legal  actions  arising  in the  normal  course of
business. These matters include, without limitation,  such matters as employment
law related  claims and disputes with two  international  franchisees  regarding
disclosures we allegedly made or omitted.  In each instance,  we believe that we
have  meritorious  defenses  to the  allegations  made  and  we  are  vigorously
defending these claims.

While the  resolution of the matters  described  above may have an impact on our
financial results for the period in which they are resolved, we believe that the
ultimate  disposition  of  these  matters  will  not,  individually  or  in  the
aggregate,  have a material  adverse  effect upon our  business or  consolidated
financial position.

Item 4.       Submission of Matters to a Vote of Security Holders

Not applicable.



                                       14
<PAGE>


                                     PART II

Item 5.       Market for  Registrant's  Common  Equity and  Related  Stockholder
              Matters

1.       Our common  stock trades on  The Nasdaq Stock Market(R)under the symbol
         APPB.

         The table  below  sets  forth for the  fiscal  quarters  indicated  the
         reported high and low sale prices of our common  stock,  as reported on
         The Nasdaq Stock Market.

<TABLE>
<CAPTION>

                                                       2002                              2001
                                          -------------------------------   -------------------------------
                                               High            Low               High            Low
                                          --------------- ---------------   --------------- ---------------
<S>                                       <C>             <C>               <C>             <C>
                First Quarter              $      25.41    $     21.20       $      16.19    $     12.44
                Second Quarter             $      27.67    $     22.26       $      21.33    $     15.88
                Third Quarter              $      23.50    $     19.13       $      22.05    $     17.32
                Fourth Quarter             $      26.35    $     19.03       $      24.59    $     17.60
</TABLE>

2.       Number of stockholders of record at December 29, 2002:    1,203

3.       We  declared an annual  dividend of $0.06 per common  share on December
         12, 2002 for  stockholders  of record on  December  27,  2002,  and the
         dividend was paid on January 30, 2003.  We declared an annual  dividend
         of $0.05 per common  share on  December  13, 2001 for  stockholders  of
         record on December 26,  2001,  and the dividend was paid on January 29,
         2002.

         We presently anticipate  continuing the payment of cash dividends based
         upon our annual net income.  The actual amount of such  dividends  will
         depend   upon  future   earnings,   results  of   operations,   capital
         requirements,  our financial condition and certain other factors. There
         can be no  assurance  as to the  amount  of net  income  that  we  will
         generate  in 2003 or future  years  and,  accordingly,  there can be no
         assurance as to the amount that will be available  for the  declaration
         of dividends, if any.

4.       For  information on our equity  compensation  plans,  refer to Item 12,
         "Security Ownership of Certain Beneficial Owners and Management."






                                       15
<PAGE>


Item 6.       Selected Financial Data

The  following  table sets forth for the  periods  and the dates  indicated  our
selected  financial  data.  The fiscal year ended December 31, 2000 contained 53
weeks, and all other periods presented  contained 52 weeks. The following should
be read in  conjunction  with the  Consolidated  Financial  Statements and Notes
thereto and  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations"  appearing elsewhere in this Form 10-K. All per share and
weighted average share  information has been restated to reflect a three-for-two
stock split in 2002.

<TABLE>
<CAPTION>

                                                                          Fiscal Year Ended
                                           ---------------------------------------------------------------------------------
                                             December 29,    December 30,    December 31,    December 26,    December 27,
                                                 2002            2001            2000            1999            1998
                                           --------------- --------------- --------------- --------------- -----------------
                                                              (in thousands, except per share amounts)
<S>                                          <C>             <C>             <C>             <C>             <C>
STATEMENT OF EARNINGS DATA:
Company restaurant sales.................     $  724,616      $  651,119      $  605,414      $  596,754      $  580,840
Franchise income.........................        102,180          93,225          84,738          72,830          66,722
                                           --------------- --------------- --------------- --------------- -----------------
     Total operating revenues............     $  826,796      $  744,344      $  690,152      $  669,584      $  647,562
                                           =============== =============== =============== =============== =================
Operating earnings.......................     $  129,708      $  112,427      $  107,207      $   94,910      $   88,562
Net earnings.............................     $   83,027      $   64,401      $   63,161      $   54,198      $   50,015
Basic net earnings per share.............     $     1.49      $     1.16      $     1.07      $     0.85      $     0.73
Diluted net earnings per share...........     $     1.46      $     1.13      $     1.07      $     0.84      $     0.73
Dividends per share......................     $     0.06      $     0.05      $     0.05      $     0.04      $     0.04
Basic weighted average shares
   outstanding...........................         55,605          55,512          58,841          63,908          68,111
Diluted weighted average shares
   outstanding...........................         56,922          56,877          59,170          64,353          68,366

BALANCE SHEET DATA
     (AT END OF FISCAL YEAR):
Total assets.............................     $  566,114      $  500,411      $  471,707      $  442,216      $  510,904
Long-term debt, including
  current portion........................     $   52,563      $   74,568      $   91,355      $  108,100      $  147,188
Stockholders' equity.....................     $  392,581      $  325,183      $  281,718      $  253,873      $  296,053


</TABLE>



                                       16

<PAGE>


Item 7.       Management's  Discussion  and Analysis  of Financial Condition and
              Results of Operations

General

Our revenues are generated from two primary sources:

o        Company restaurant sales (food and beverage sales)
o        Franchise income

Franchise  income consists of franchise  restaurant  royalties  (generally 4% of
each  franchise  restaurant's  monthly  gross sales) and  franchise  fees (which
typically range from $30,000 to $35,000 for each Applebee's  restaurant opened).
Beverage  sales  include  sales  of  alcoholic  beverages,  while  non-alcoholic
beverages are included in food sales.

Certain expenses relate only to company operated restaurants. These include:

o        Food and beverage costs
o        Labor costs
o        Direct and occupancy costs
o        Pre-opening expenses

Other expenses,  such as general and administrative  and amortization  expenses,
relate to both company operated restaurants and franchise operations.

We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal years ended  December  29,  2002,  December 30, 2001 and December 31,
2000 contained 52, 52 and 53 weeks, respectively,  and are referred to hereafter
as 2002, 2001 and 2000, respectively.

Application of Critical Accounting Policies

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  are based upon our  consolidated  financial  statements,  which were
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of America.  These  principles  require us to make  estimates and
assumptions  that  affect the  reported  amounts in the  consolidated  financial
statements  and notes thereto.  Actual results may differ from these  estimates,
and such differences may be material to the consolidated  financial  statements.
We believe that the following  significant  accounting policies involve a higher
degree of  judgement or  complexity  (see Note 2 of our  Consolidated  Financial
Statements for a complete discussion of our significant accounting policies).

Franchise income: Franchise income consists of franchise royalties and franchise
fees. We recognize  royalties on a franchisee's sales in the period in which the
sales  occur.  We also  receive  a  franchise  fee for  each  restaurant  that a
franchisee   opens.   Franchise  fees  are  deferred  until  we  have  performed
substantially all of our related  obligations as franchisor,  typically when the
restaurant opens.

Property  and   equipment:   Property  and  equipment  are   depreciated   on  a
straight-line  basis over the estimated  useful lives of the assets.  The useful
lives of the assets are based upon  management's  expectations.  We periodically
review the assets for changes in  circumstances  which may impact  their  useful
lives.

                                       17
<PAGE>

Impairment of long-lived  assets: We periodically  review property and equipment
for  impairment  using  historical  cash flows as well as current  estimates  of
future cash flows and/or appraisals. This assessment process requires the use of
estimates  and  assumptions  which  are  subject  to  a  significant  degree  of
judgement.  In addition,  we periodically  assess the recoverability of goodwill
and other intangible assets, which requires us to make assumptions regarding the
future cash flows and other  factors to determine  the fair value of the assets.
If  these  assumptions  change  in the  future,  we may be  required  to  record
impairment charges for these assets.

Legal and  insurance  reserves:  We are  periodically  involved in various legal
actions arising in the normal course of business.  We are required to assess the
probability of any adverse judgements as well as the potential range of loss. We
determine  the  required  accruals  after a review  of the  facts of each  legal
action.

We use estimates in the determination of the appropriate liabilities for general
liability,  workers' compensation and health insurance.  The estimated liability
is  established  based upon  historical  claims data and  third-party  actuarial
estimates of  settlement  costs for incurred  claims.  Unanticipated  changes in
these factors may require us to revise our estimates.

Employee  incentive  compensation  plans:  We have  various  long-term  employee
incentive compensation plans which require us to make estimates to determine our
liability  based  upon  projected   performance  of  plan  criteria.  If  actual
performance  against the criteria  differs from our estimates in the future,  we
will be required to adjust our liability accordingly.

Receivables:   We  continually   assess  the  collectibility  of  our  franchise
receivables.  We establish our allowance for bad debts based on several factors,
including historical collection experience, the current economic environment and
other  specific  information  available to us at the time. The allowance for bad
debts may change in the future due to changes in the factors  above or other new
developments.

We periodically  reassess our  assumptions  and judgements and make  adjustments
when significant facts and circumstances  dictate.  A change in any of the above
estimates could impact our  consolidated  statements of earnings and the related
asset or liability recorded in the consolidated balance sheets would be adjusted
accordingly.  Historically,  actual results have not been  materially  different
than the estimates that are described above.

Acquisition

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.



                                       18
<PAGE>



Results of Operations

The  following  table  contains   information   derived  from  our  consolidated
statements of earnings  expressed as a percentage of total  operating  revenues,
except where otherwise noted. Percentages may not add due to rounding.

<TABLE>
<CAPTION>

                                                                           Fiscal Year Ended
                                                            -------------------------------------------------
                                                              December 29,     December 30,    December 31,
                                                                  2002           2001(1)           2000
                                                            ---------------- --------------- ----------------
<S>                                                              <C>             <C>              <C>
  Revenues:
       Company restaurant sales.........................           87.6%           87.5%            87.7%
       Franchise income.................................           12.4            12.5             12.3
                                                            ---------------- --------------- ----------------
          Total operating revenues......................          100.0%          100.0%           100.0%
                                                            ================ =============== ================
  Cost of sales (as a percentage of company restaurant
       sales):
       Food and beverage................................           26.6%           27.0%            27.4%
       Labor............................................           32.9            32.1             31.6
       Direct and occupancy.............................           25.1            25.3             25.0
       Pre-opening expense..............................            0.3             0.3              0.3
                                                            ---------------- --------------- ----------------
          Total cost of sales...........................           84.8%           84.7%            84.4%
                                                            ================ =============== ================

  General and administrative expenses...................            9.8%            9.8%             9.4%
  Amortization of intangible assets.....................            --              0.8              0.9
  Loss on disposition of restaurants and equipment......            0.1             0.2              0.2
                                                            ---------------- --------------- ----------------
  Operating earnings....................................           15.7            15.1             15.5
                                                            ---------------- --------------- ----------------
  Other income (expense):
       Investment income................................            0.2             0.2              0.2
       Interest expense.................................           (0.3)           (1.0)            (1.3)
       Other income (expense)...........................            0.1            (0.6)             0.1
                                                            ---------------- --------------- ----------------
          Total other income (expense)..................            0.1            (1.4)            (1.1)
                                                            ---------------- --------------- ----------------
  Earnings before income taxes..........................           15.7            13.7             14.5
  Income taxes..........................................            5.7             5.0              5.3
                                                            ---------------- --------------- ----------------
  Net earnings..........................................           10.0%            8.7%             9.2%
                                                            ================ =============== ================

</TABLE>












(1) As a result of the adoption of Statement of Financial  Accounting  Standards
No. 145,  "Rescission of FASB  Statements  No. 4, 44, and 64,  Amendment of FASB
Statement No. 13, and Technical  Corrections," the  extraordinary  loss from the
extinguishment  of debt and the  related tax benefit  previously  recognized  in
fiscal 2001 have been reclassified to other expense.






                                       19

<PAGE>


Fiscal  Year  Ended  December  29,  2002  Compared   With  Fiscal   Year   Ended
December 30, 2001
--------------------------------------------------------------------------------

Company Restaurant Sales.  Total company restaurant sales increased  $73,497,000
(11%) from  $651,119,000  in 2001 to $724,616,000  in 2002.  Company  restaurant
openings  contributed  approximately  9% to the 11%  increase  in total  company
restaurant  sales.  The  remaining  increase  was due to the  acquisition  of 21
franchise  restaurants  in the  Washington,  D.C.  area  in  November  2002  and
increases in weighted average weekly sales.

Comparable  restaurant sales at company  restaurants  increased by 1.8% in 2002.
Weighted average weekly sales at company restaurants increased 0.8% from $42,660
in 2001 to $43,019 in 2002.  These  increases were due primarily to increases in
guest traffic and in the average guest check resulting from our food promotions.
In addition,  a portion of the increase resulted from the  implementation of our
To Go initiative and menu price increases of  approximately  1.0% in 2002. To Go
sales mix increased from approximately 4% of company restaurant sales in 2001 to
5% of company restaurant sales in 2002.

Franchise  Income.  Overall  franchise  income  increased  $8,955,000 (10%) from
$93,225,000 in 2001 to $102,180,000  in 2002. The increased  number of franchise
restaurants operating during 2002 as compared to 2001 contributed  approximately
7% to the 10% total  increase  in  franchise  income.  In  addition,  comparable
restaurant  sales and weighted  average  weekly sales for franchise  restaurants
increased 3.6% and 3.7%, respectively, in 2002.

Cost of Company  Restaurant  Sales. Food and beverage costs decreased from 27.0%
in 2001 to 26.6% in 2002.  This  decrease was due  primarily to lower  commodity
costs and operational  improvements  resulting from our supply chain  management
initiatives implemented in 2001.

Labor costs increased from 32.1% in 2001 to 32.9% in 2002. This increase was due
to  increased  hourly wage rates and higher  management  salaries due to our new
employee retention program and increased incentive compensation.

Direct and  occupancy  costs  decreased  from 25.3% in 2001 to 25.1% in 2002 due
primarily to lower  utility  costs and  advertising  costs,  as a percentage  of
sales.  These decreases were partially offset by higher packaging costs relating
to our To Go initiative.

General and Administrative  Expenses.  General and administrative  expenses were
9.8% in both 2001 and 2002. General and administrative expenses were impacted by
higher  incentive  compensation  and higher legal fees in 2002.  These increases
were offset by the costs incurred in 2001 associated with our purchasing  supply
chain and strategic brand assessment  projects and the absorption of general and
administrative expenses over a larger revenue base in 2002.

Amortization of Intangible  Assets.  Amortization of intangible assets decreased
from  $5,851,000  in 2001 to  $381,000  in 2002.  This  decrease  was due to the
elimination of goodwill  amortization  in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."

Interest  Expense.  Interest  expense  decreased  in 2002  compared  to 2001 due
primarily to a reduction in our debt levels and lower  interest rates in 2002 as
compared to 2001.



                                       20
<PAGE>

Other Income  (Expense).  Other income was  $1,098,000 in 2002 compared to other
expense of $4,720,000 in 2001.  This  favorable  variance was due primarily to a
payment of $4,470,000 to terminate  our interest  rate swap  agreements  and the
write-off of deferred  financing  costs of  $1,976,000  in  connection  with the
refinancing of our debt in 2001 in accordance with SFAS No. 145,  "Rescission of
FASB  Statements  No. 4, 44, and 64,  Amendment  of FASB  Statement  No. 13, and
Technical Corrections."

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income taxes,  decreased  from 36.8% in 2001 to 36.2% in 2002 due to lower state
and local income taxes.

Fiscal  Year  Ended   December  30,  2001  Compared   With  Fiscal  Year   Ended
December 31, 2000
--------------------------------------------------------------------------------

Company Restaurant Sales.  Total company restaurant sales increased  $45,705,000
(8%) from  $605,414,000 in 2000 to $651,119,000 in 2001 due primarily to company
restaurant  openings and  increases in  comparable  restaurant  sales which were
partially offset by the fifty-third week in 2000.

Comparable  restaurant sales at company  restaurants  increased by 2.5% in 2001.
Weighted average weekly sales at company restaurants increased 1.1% from $42,183
in 2000 to $42,660 in 2001. These increases were due primarily to an increase in
the average guest check  resulting from the company's  food  promotions and menu
price increases of approximately 2.0%.

Franchise  Income.  Overall  franchise  income  increased  $8,487,000 (10%) from
$84,738,000 in 2000 to $93,225,000 in 2001 due primarily to the increased number
of franchise restaurants operating during 2001 as compared to 2000 and increases
in  comparable  restaurant  sales.  This  increase was  partially  offset by the
fifty-third  week in 2000.  Comparable  restaurant  sales and  weighted  average
weekly sales for franchise restaurants increased 3.0% and 2.7%, respectively, in
2001.

Cost of Company  Restaurant  Sales. Food and beverage costs decreased from 27.4%
in 2000 to 27.0% in 2001.  This  decrease was due primarily to the impact of the
menu price increases in 2001, a supply chain management  initiative in 2001, and
higher costs relating to the  implementation of a new menu in the fourth quarter
of 2000.

Labor costs increased from 31.6% in 2000 to 32.1% in 2001. This increase was due
to higher costs  related to  management  staffing  levels and higher  management
incentive compensation.

Direct and  occupancy  costs  increased  from 25.0% in 2000 to 25.3% in 2001 due
primarily to higher  utility  costs and repairs and  maintenance  expense.  This
increase  was  partially  offset  by  a  decrease  in  advertising  costs,  as a
percentage  of sales,  due to  increased  advertising  in 2000  relating  to the
implementation of our new menu in company restaurants.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  from 9.4% in 2000 to 9.8% in 2001 due  primarily to costs  associated
with our supply chain  management  initiative  and  strategic  brand  assessment
project  as well as higher  incentive  compensation  expense.  These  costs were
partially offset by the absorption of general and administrative expenses over a
larger revenue base.

Interest  Expense.  Interest  expense  decreased  in 2001  compared  to 2000 due
primarily  to a reduction in our debt levels,  the  termination  of our interest
rate  swap  agreements  in  November  2001 and lower  interest  rates in 2001 as
compared to 2000.

Other Expense. Other expense increased in 2001 compared to 2000 due primarily to
a payment of $4,470,000 to terminate our interest rate swap  agreements  and the
write-off of deferred  financing  costs of  $1,976,000  in  connection  with the
refinancing of our debt in 2001 in accordance with SFAS No. 145,  "Rescission of
FASB  Statements  No. 4, 44, and 64,  Amendment  of FASB  Statement  No. 13, and
Technical Corrections."

                                       21
<PAGE>

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income taxes, was 36.8% in both 2000 and 2001.

Liquidity and Capital Resources

Our need for  capital  historically  has  resulted  from  the  construction  and
acquisition of restaurants, investment in information technology systems and the
repurchase of our common shares.  In the past, we have obtained  capital through
public stock offerings,  debt financing, and our ongoing operations.  Cash flows
from our ongoing  operations  include cash  generated from company and franchise
operations,  credit from trade  suppliers,  real  estate  lease  financing,  and
landlord contributions to leasehold  improvements.  We have also used our common
stock as consideration in the acquisition of restaurants.  In addition,  we have
assumed  debt or  issued  new  debt  in  connection  with  certain  mergers  and
acquisitions.

Capital  expenditures  increased from $50,086,000 in 2001 to $64,874,000 in 2002
(excluding  $34,250,000  related to the  acquisition  of 21  restaurants  in the
Washington,  D.C. area) due primarily to expenditures related to the enhancement
of our information systems. We currently expect to open approximately 25 company
restaurants,  and capital expenditures excluding acquisitions are expected to be
between  $65,000,000 and $75,000,000 in 2003. These  expenditures will primarily
be for the development of new restaurants, refurbishment and capital replacement
for existing restaurants, and the enhancement of information systems. Because we
expect to  continue  to  purchase a portion  of our sites,  the amount of actual
capital  expenditures will be dependent upon, among other things, the proportion
of leased versus owned properties. In addition, if we open more restaurants than
we  currently  anticipate  or  acquire  additional   restaurants,   our  capital
requirements will increase accordingly.

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.

On January 20, 2003,  we reached an agreement  with a franchisee  to acquire the
operations and assets of 11 Applebee's restaurants located in Illinois, Indiana,
Kentucky and Missouri for $23,200,000 in cash at closing, subject to adjustment.
The  acquisition  of the  restaurants  is anticipated to close late in the first
quarter of 2003,  subject to obtaining  operating licenses and other third-party
consents.

Our bank credit  agreement  provides  for a  $150,000,000  three-year  unsecured
revolving credit facility,  of which $25,000,000 may be used for the issuance of
letters of credit. The facility is subject to various covenants and restrictions
which,  among other things,  require the maintenance of stipulated fixed charge,
leverage  and  indebtedness  to  capitalization  ratios,  as defined,  and limit
additional indebtedness and capital expenditures in excess of specified amounts.
Cash dividends are limited to $10,000,000  annually.  The facility is subject to
standard  other terms,  conditions,  covenants,  and fees.  We are  currently in
compliance with the covenants contained in our credit agreement.  As of December
29, 2002, we had  borrowings  of  $48,000,000  and standby  letters of credit of
$11,691,000  outstanding  under our  revolving  credit  facility.  We also had a
standby  letter  of credit  for  $827,000  outstanding  with  another  financial
institution.

                                       22
<PAGE>

In February  2001,  our Board of Directors  authorized  the  repurchase of up to
$55,000,000 of our common stock through 2001,  subject to market  conditions and
applicable  restrictions  imposed by our then-current  credit  agreement.  As of
December 30,  2001,  we had  $20,600,000  remaining  on this  authorization.  In
February 2002, our Board of Directors  extended the 2001  authorization  through
2002. In May 2002, our Board of Directors authorized an additional repurchase of
$75,000,000  of our common stock through May 2005.  During 2002, we  repurchased
1,210,000  shares of our  common  stock at an  average  price of  $21.58  for an
aggregate  cost of  $26,100,000.  As of December  29, 2002,  we had  $69,500,000
remaining under the 2002 authorization.

As of December 29, 2002,  our liquid assets  totaled  $15,672,000.  These assets
consisted  of cash  and  cash  equivalents  in the  amount  of  $15,169,000  and
short-term  investments in the amount of $503,000.  The working  capital deficit
increased from $29,747,000 as of December 30, 2001 to $45,607,000 as of December
29,  2002.  This  increase  was due  primarily  to  decreases  in cash  and cash
equivalents due to payments on long-term debt, the acquisition of 21 restaurants
in the Washington,  D.C. area and an increase in accrued  compensation  and gift
certificate liabilities.

On  September  20,  2002,  we formed  Neighborhood  Insurance,  Inc.,  a Vermont
corporation  and a  wholly-owned  subsidiary,  as a captive  insurance  company.
Neighborhood   Insurance,   Inc.   was   established   to   provide   Applebee's
International,  Inc.  and certain  franchisees  with  workers  compensation  and
general  liability  insurance.   Applebee's  International,   Inc.  and  covered
franchisees  will make premium payments to the captive  insurance  company which
will pay  administrative  fees and insurance  claims,  subject to individual and
aggregate maximum claim limits under the captive insurance company's reinsurance
policies. As a result, our cash and cash equivalents and accrued liabilities may
increase  in  future  periods  due to the  operation  of the  captive  insurance
company.

We believe that our liquid assets and cash generated from  operations,  combined
with borrowings  available under our credit facilities,  will provide sufficient
funds for our  operating,  capital and other  requirements  for the  foreseeable
future.

The following  table shows our debt  amortization  schedule,  our future capital
lease  commitments  (including  principal and interest  payments) and our future
operating lease commitments as of December 29, 2002 (in thousands):

<TABLE>
<CAPTION>


                                                                    Payments due by period
                                             ----------------------------------------------------------------------
                 Certain                                     Less than 1       1-3           3-5       More than 5
         Contractual Obligations                 Total          year          years         years         years
-------------------------------------------  -------------- ------------- ------------- ------------- -------------
<S>                                           <C>            <C>           <C>           <C>           <C>
Long-term Debt (excluding capital
  lease obligations)................           $   48,325     $     325     $  48,000     $     --      $      --
Capital Lease Obligations................      $   10,554     $     716     $   1,508     $   1,616     $    6,714
Operating Leases.........................      $  184,702     $  16,430     $  30,665     $  27,888     $  109,719

</TABLE>

In addition,  we have outstanding lease guarantees of approximately  $24,200,000
as of December 29, 2002 (see Note 12 to our Consolidated Financial Statements).


                                       23
<PAGE>


Inflation

Substantial  increases in costs and expenses could impact our operating  results
to the extent such increases cannot be passed along to customers. In particular,
increases  in  food,  supplies,  labor  and  operating  expenses  could  have  a
significant  impact on our operating  results.  We do not believe that inflation
has materially affected our operating results during the past three years.

A majority of our  employees  are paid hourly rates related to federal and state
minimum  wage laws and  various  laws that allow for  credits to that wage.  The
Federal  government  continues  to consider  an  increase  in the minimum  wage.
Several  state  governments  have  increased  the  minimum  wage and other state
governments are also considering an increased minimum wage. In the past, we have
been able to pass along cost  increases to  customers  through food and beverage
price  increases,  and  we  will  attempt  to do so in  the  future.  We  cannot
guarantee,  however,  that all future cost  increases  can be  reflected  in our
prices or that increased  prices will be absorbed by customers  without at least
somewhat diminishing customer spending in our restaurants.

New Accounting Pronouncements

In July 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
141,  "Business   Combinations."   SFAS  No.  141  requires  that  all  business
combinations  be  accounted  for using the  purchase  method of  accounting  and
requires  separate  recognition of intangible assets that meet certain criteria.
This Statement applies to all business combinations after June 30, 2001.

In July 2001,  the FASB  issued  SFAS No. 142,  "Goodwill  and Other  Intangible
Assets", and we adopted this Statement effective December 31, 2001. SFAS No. 142
requires that an intangible asset that is acquired shall be initially recognized
and measured based on its fair value. This Statement also provides that goodwill
should not be amortized,  but shall be tested for impairment  annually,  or more
frequently if circumstances indicate potential impairment,  through a comparison
of fair value to its carrying  amount.  In the first  quarter of fiscal 2002, we
completed the first step of the required  two-step goodwill  impairment  testing
and ceased  amortization  of  goodwill.  The first step of the  impairment  test
required us to compare  the fair value of each  reporting  unit to its  carrying
value to determine  whether there was an indication that an impairment  existed.
If there had been an indication of impairment,  we would have allocated the fair
value of the reporting  unit to its assets and  liabilities  as if the reporting
unit had been  acquired in a business  combination.  During 2002,  no impairment
losses were recorded under SFAS No. 142.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment of
Long-Lived  Assets",   which  supersedes  SFAS  No.  121,  "Accounting  for  the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
the accounting and reporting provisions of APB No. 30, "Reporting the Results of
Operations - Reporting  the Effects of Disposal of a Segment of a Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 retains many of the  provisions of SFAS No. 121, but  addresses  certain
implementation  issues  associated with that Statement.  We adopted SFAS No. 144
effective  December  31,  2001.  The  adoption  of SFAS  No.  144 did not have a
material impact on our consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
SFAS Nos. 4 and 64 required gains and losses from  extinguishment  of debt to be
classified as  extraordinary  items.  SFAS No. 145 rescinds this requirement and
stipulates that gains or losses on extinguishment of debt would have to meet the
criteria of APB Opinion No. 30 to be  classified  as an  extraordinary  item. In
addition,  any extraordinary  gains or losses on extinguishment of debt in prior
periods presented would require reclassification. SFAS No. 145 is required, with
early adoption  encouraged,  for fiscal years  beginning  after May 15, 2002. We
early  adopted  SFAS No. 145 during the fourth  quarter of fiscal  2002 and as a
result,  we  reclassified  the  $1,249,000  (net of a  related  tax  benefit  of
$727,000)  extraordinary  loss  from  the  extinguishment  of debt  in our  2001
consolidated statements of earnings to other expense and income taxes.

                                       24
<PAGE>


In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." This Statement requires that a liability for
a cost associated with an exit or disposal  activity be recognized only when the
liability is incurred and measured at fair value.  SFAS No. 146 is effective for
exit or disposal  activities  that are initiated  after December 31, 2002. We do
not expect the initial  adoption of this Statement to have a material  impact on
our results of operations or financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness of Others." Interpretation No. 45 supersedes Interpretation No. 34,
"Disclosure  of Indirect  Guarantees  of  Indebtedness  of Others," and provides
guidance to guarantors on the recognition and disclosure concerning  obligations
under certain guarantees in interim and annual financial statements. The initial
recognition and measurement  provisions of  Interpretation  No. 45 are effective
for guarantees issued or modified after December 31, 2002, and are to be applied
prospectively.   The  disclosure   requirements   are  effective  for  financial
statements  for interim or annual  periods  ending after  December 15, 2002.  We
adopted the initial  recognition  provisions of Interpretation No. 45 in January
of 2003. The disclosure  provisions of this  Interpretation are effective for us
as of December 29, 2002. The initial adoption of  Interpretation  No. 45 did not
have a material impact on our results of operations or financial position.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation," and provides  alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee compensation. This Statement also amends the disclosure
requirements  of SFAS No.  123 to  require  prominent  disclosure  in annual and
interim financial statements about the effects of stock-based compensation.  The
transition  guidance  and  annual  disclosure  provisions  of SFAS  No.  148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure  provisions of this Statement are effective for
financial reports containing  financial statements for interim periods beginning
after December 15, 2002. We have adopted the  disclosure  provisions of SFAS No.
148.

Forward-Looking Statements

The  statements  contained  in the  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations"  section  regarding  restaurant
development,  capital expenditures and financial commitments are forward-looking
and based on current  expectations.  There are several  risks and  uncertainties
that could cause actual results to differ materially from those described. These
risks  include  but are not  limited  to our  ability  and  the  ability  of our
franchisees to open and operate additional restaurants profitably, the continued
growth of our  franchisees  and our  ability  to attract  and  retain  qualified
franchisees,  the impact of intense  competition in the casual dining segment of
the restaurant  industry and our ability to control  restaurant  operating costs
which are impacted by market changes,  minimum wage and other  employment  laws,
food  costs and  inflation.  For a more  detailed  discussion  of the  principal
factors that could cause actual results to be materially  different,  you should
read our  current  report on Form 8-K  which we filed  with the  Securities  and
Exchange  Commission on February 12, 2003. We disclaim any  obligation to update
forward-looking statements.

                                       25
<PAGE>

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from fluctuations in interest rates and changes in
commodity  prices.  Our revolving  credit  facility bears interest at either the
bank's  prime rate or LIBOR plus 1.0%,  at our option.  As of December 29, 2002,
the total amount of debt subject to interest rate  fluctuations  was $48,000,000
which was outstanding on our revolving credit facility.  A 1% change in interest
rates would  result in an  increase or decrease in interest  expense of $480,000
per year. We may from time to time enter into  interest rate swap  agreements to
manage the impact of interest  rate  changes on our  earnings.  Many of the food
products we purchase  are subject to price  volatility  due to factors  that are
outside of our control such as weather and seasonality.  As part of our strategy
to  moderate  this  volatility,  we  have  entered  into  fixed  price  purchase
commitments with terms of one year or less.


Item 8.       Financial Statements and Supplementary Data

See the Index to Consolidated Financial Statements on Page F-1.


Item 9.       Changes in  and Disagreements  with Accountants on  Accounting and
              Financial Disclosure

Not applicable.

                                       26
<PAGE>


                                    PART III

Item 10.      Directors and Executive Officers of the Registrant

If you would like information about our executive officers,  you should read the
section  entitled  "Executive  Officers  of the  Registrant"  in  Part I of this
report. If you would like information  about our Directors,  you should read the
information  under the caption  "Information  About the Board of  Directors  and
Executive   Officers"  in  the  Proxy   Statement  for  the  Annual  Meeting  of
Stockholders  to be held on or about May 8,  2003.  We  incorporate  that  Proxy
Statement in this document by reference.

Item 11.      Executive Compensation

If you would like information about our executive compensation,  you should read
the  information  under  the  caption  "Executive  Compensation"  in  the  Proxy
Statement for the Annual Meeting of  Stockholders  to be held on or about May 8,
2003. We incorporate that information in this document by reference.

Item 12.      Security Ownership of Certain Beneficial Owners and Management

If you  would  like  information  about the stock  owned by our  management  and
certain large  stockholders and our equity  compensation  plans, you should read
the information  under the caption "Stock  Ownership of Officers,  Directors and
Major  Stockholders"  and "Equity  Compensation  Plan  Information" in the Proxy
Statement for the Annual Meeting of  Stockholders  to be held on or about May 8,
2003. We incorporate that information in this document by reference.

Item 13.      Certain Relationships and Related Transactions

If you would like information about certain transactions which we have completed
or  certain  relationships  which we have  entered  into,  you  should  read the
information under the caption "Certain  Transactions" in the Proxy Statement for
the  Annual  Meeting  of  Stockholders  to be held on or about May 8,  2003.  We
incorporate that information in this document by reference.

Item 14.      Controls and Procedures

Within  ninety days prior to the filing of this report,  we have  evaluated  the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures  under  the  supervision  and with  the  participation  of the  Chief
Executive  Officer ("CEO") and Chief Financial  Officer  ("CFO").  Based on this
evaluation,  our  management,  including  the CEO and  CFO,  concluded  that our
disclosure   controls  and  procedures  were  effective.   There  have  been  no
significant  changes in our  internal  controls or in other  factors  that could
significantly   affect  internal  controls  subsequent  to  the  date  of  their
evaluation.




                                       27
<PAGE>


                                     PART IV

Item 15.      Exhibits and Reports on Form 8-K

(a)      List of documents filed as part of this report:

         1.      Financial Statements:

                 The financial statements are listed in the accompanying "Index
                 to Consolidated Financial Statements" on Page F-1.

         2.      Exhibits:

                 The exhibits filed with or incorporated by reference in this
                 report are listed on the Exhibit Index beginning on page E-1.

(b)      Reports on Form 8-K:

         We filed a  report  on Form  8-K on  October  1,  2002,  announcing  an
         agreement to acquire certain  secured debt of Apple Capitol Group,  LLC
         owed to Lehman Brothers Holdings, Inc. for $34.3 million.

         We filed a report on Form 8-K on October 9, 2002,  announcing  that the
         Bankruptcy  Court for the  Southern  District of Florida had entered an
         order  approving  the sale of 21 franchise  restaurants  located in the
         Washington,   D.C.  area  operated  by  Apple  Capitol  Group,  LLC  to
         Applebee's International, Inc.

         We  furnished a report on Form 8-K on October 25, 2002  announcing  the
         broadcast of our third quarter 2002 earnings  conference  call over the
         Internet.

         We filed a report on Form 8-K on October  31,  2002,  announcing  third
         quarter 2002 diluted earnings per share of 37 cents.

         We filed a report  on Form 8-K on  November  8,  2002,  announcing  the
         completion of the  acquisition of 21 franchise  restaurants  located in
         the Washington, D.C. area.

         We  filed a  report  on  Form  8-K on  December  12,  2002,  announcing
         executive changes.

         We filed a report  on Form 8-K on  December  12,  2002,  announcing  an
         increased annual dividend.


                                       28
<PAGE>


                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       APPLEBEE'S INTERNATIONAL, INC.


Date:   March 14, 2003              By:   /s/   Lloyd L. Hill
     --------------------              -------------------------------------
                                       Lloyd L. Hill
                                       Chairman and Chief Executive Officer


                                POWER OF ATTORNEY

KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below  constitutes and appoints Lloyd L. Hill and Robert T. Steinkamp,  and each
of them,  his true and lawful  attorney-in-fact  and  agent,  with full power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all  capacities,  to sign any  amendments to this Form 10-K, and to file
the same,  with exhibits  thereto and other  documents in connection  therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or his substitute or substitutes,  may do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on  behalf of the registrant  and
in the capacities and on the dates indicated.


By:  /s/   Lloyd L. Hill                           Date:     March 14, 2003
     --------------------------------------             ------------------------
     Lloyd L. Hill
      Director, Chairman of the Board and Chief
     Executive Officer
     (principal executive officer)

By:  /s/   Steven K. Lumpkin                       Date:     March 14, 2003
     --------------------------------------             ------------------------
     Steven K. Lumpkin
     Executive Vice President and Chief
     Financial Officer
     (principal financial officer)

By:  /s/   Beverly O. Elving                       Date:     March 14, 2003
     --------------------------------------             ------------------------
     Beverly O. Elving
     Vice President, Accounting
     (principal accounting officer)


                                       29
<PAGE>



By:  /s/   Erline Belton                           Date:     March 14, 2003
     --------------------------------------             ------------------------
     Erline Belton
     Director


By:  /s/   Douglas R. Conant                       Date:     March 14, 2003
     --------------------------------------             ------------------------
     Douglas R. Conant
     Director


By:  /s/   D. Patrick Curran                       Date:     March 14, 2003
     --------------------------------------             ------------------------
     D. Patrick Curran
     Director


By:  /s/   Eric L. Hansen                          Date:     March 14, 2003
     --------------------------------------             ------------------------
     Eric L. Hansen
     Director


By:  /s/   Mark S. Hansen                          Date:     March 14, 2003
     --------------------------------------             ------------------------
     Mark S. Hansen
     Director


By:  /s/   Jack P. Helms                           Date:     March 14, 2003
     --------------------------------------             ------------------------
     Jack P. Helms
     Director


By:  /s/   Burton M. Sack                          Date:     March 14, 2003
     --------------------------------------             ------------------------
     Burton M. Sack
     Director

By:  /s/   George D. Shadid                        Date:     March 14, 2003
     --------------------------------------             ------------------------
     George D. Shadid
     Director



                                       30
<PAGE>


                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Lloyd L. Hill, certify that:
1.       I  have  reviewed  this  annual  report  on  Form  10-K  of  Applebee's
         International, Inc.;
2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;
3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report;
4.       The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:
         a)       designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;
         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and
         c)       presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;
5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent function):
         a)       all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and
         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and
6.       The registrant's  other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.


Date:    March 14, 2003              By:  /s/    Lloyd L. Hill
      ---------------------             ------------------------------------
                                        Lloyd L. Hill
                                        Chairman and Chief Executive Officer
                                        (principal executive officer)


                                       31
<PAGE>


                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Steven K. Lumpkin, certify that:
1.       I  have  reviewed  this  annual  report  on  Form  10-K  of  Applebee's
         International, Inc.;
2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;
3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report;
4.       The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:
         a)       designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;
         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and
         c)       presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;
5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent function):
         a)       all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and
         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and
6.       The registrant's  other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.


Date:    March 14, 2003              By:  /s/    Steven K. Lumpkin
      ---------------------             ------------------------------------
                                        Steven K. Lumpkin
                                        Executive Vice President and
                                        Chief Financial Officer
                                        (principal financial officer)



                                       32

<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                   Index to consolidated Financial Statements

<TABLE>
<CAPTION>

                                                                                                               Page


<S>                                                                                                          <C>
   Independent Auditors' Report.............................................................................  F-2

   Consolidated Balance Sheets as of December 29, 2002 and
       December 30, 2001  ..................................................................................  F-3

   Consolidated Statements of Earnings for the fiscal years ended
       December 29, 2002, December 30, 2001 and December 31, 2000...........................................  F-4

   Consolidated Statements of Stockholders' Equity for the fiscal Years
       Ended December 29, 2002, December 30, 2001 and December 31, 2000.....................................  F-5

   Consolidated Statements of Cash Flows for the fiscal years ended
       December 29, 2002, December 30, 2001 and December 31, 2000...........................................  F-6

   Notes to Consolidated Financial Statements...............................................................  F-8



</TABLE>


                                      F-1


<PAGE>


                          Independent Auditors' Report


Applebee's International, Inc.:

We have  audited the  accompanying  consolidated  balance  sheets of  Applebee's
International, Inc. and subsidiaries (the "Company") as of December 29, 2002 and
December  30,  2001,  and  the  related  consolidated  statements  of  earnings,
stockholders'  equity and cash flows for each of the three  fiscal  years in the
period  ended   December  29,  2002.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of the Company as of December 29, 2002
and December 30, 2001, and the results of their  operations and their cash flows
for each of the three  fiscal years in the period  ended  December 29, 2002,  in
conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note 6 to the  consolidated  financial  statements,  the Company
changed its method of accounting for goodwill and other  intangible  assets with
the adoption of Statement of Financial  Accounting  Standards No. 142, "Goodwill
and Other Intangible Assets," on December 31, 2001.




Deloitte & Touche LLP

Kansas City, Missouri
March 5, 2003

                                      F-2
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                                       December 29,       December 30,
                                                                                           2002               2001
                                                                                      --------------     --------------
                                                       ASSETS
<S>                                                                                    <C>                <C>
Current assets:
     Cash and cash equivalents......................................................    $  15,169          $  22,048
     Short-term investments, at market value........................................          503                699
     Receivables, net of allowance..................................................       27,895             22,827
     Inventories....................................................................       11,504             10,165
     Prepaid and other current assets...............................................       14,508             12,260
                                                                                      --------------     --------------
        Total current assets........................................................       69,579             67,999
Property and equipment, net.........................................................      383,002            330,924
Goodwill............................................................................       88,715             78,614
Franchise interest and rights, net..................................................        1,468              1,800
Other assets........................................................................       23,350             21,074
                                                                                      --------------     --------------
                                                                                        $ 566,114          $ 500,411
                                                                                      ==============     ==============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt..............................................    $     377          $      43
     Accounts payable...............................................................       27,479             22,196
     Accrued expenses and other current liabilities.................................       84,007             71,551
     Accrued dividends..............................................................        3,323              2,977
     Accrued income taxes...........................................................          --                 979
                                                                                      --------------     --------------
        Total current liabilities...................................................      115,186             97,746
                                                                                      --------------     --------------
Non-current liabilities:
     Long-term debt - less current portion..........................................       52,186             74,525
     Other non-current liabilities..................................................        6,161              2,957
                                                                                      --------------     --------------
        Total non-current liabilities...............................................       58,347             77,482
                                                                                      --------------     --------------
        Total liabilities...........................................................      173,533            175,228
                                                                                      --------------     --------------
Commitments and contingencies (Notes 8, 9, and 12)
Stockholders' equity:
     Preferred stock - par value $0.01 per share:  authorized - 1,000,000 shares;
        no shares issued............................................................          --                 --
     Common stock - par value $0.01 per share:  authorized - 125,000,000 shares;
        issued - 72,336,788 shares in 2002 and 2001.................................          723                723
     Additional paid-in capital.....................................................      187,523            180,802
     Retained earnings..............................................................      434,621            354,950
     Accumulated other comprehensive income, net of income taxes....................           16                 14
                                                                                      --------------     --------------
                                                                                          622,883            536,489
     Treasury stock - 16,948,371 shares in 2002 and 16,522,099 shares in 2001, at
        cost........................................................................     (230,302)          (211,306)
                                                                                      --------------     --------------
        Total stockholders' equity..................................................      392,581            325,183
                                                                                      --------------     --------------
                                                                                        $ 566,114          $ 500,411
                                                                                      ==============     ==============


</TABLE>




                 See notes to consolidated financial statements.

                                      F-3
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                  Fiscal Year Ended
                                                                  ----------------------------------------------------
                                                                   December 29,       December 30,       December 31,
                                                                       2002               2001               2000
                                                                  --------------     --------------     --------------
<S>                                                                 <C>                <C>                <C>
Revenues:
     Company restaurant sales................................        $ 724,616          $ 651,119          $ 605,414
     Franchise income........................................          102,180             93,225             84,738
                                                                  --------------     --------------     --------------
        Total operating revenues.............................          826,796            744,344            690,152
                                                                  --------------     --------------     --------------
Cost of company restaurant sales:
     Food and beverage.......................................          192,424            175,977            166,014
     Labor...................................................          238,266            208,996            191,402
     Direct and occupancy....................................          181,767            164,965            151,611
     Pre-opening expense.....................................            1,974              1,701              1,659
                                                                  --------------     --------------     --------------
        Total cost of company restaurant sales...............          614,431            551,639            510,686
                                                                  --------------     --------------     --------------

General and administrative expenses..........................           81,138             72,935             65,060
Amortization of intangible assets............................              381              5,851              5,934
Loss on disposition of restaurants and equipment.............            1,138              1,492              1,265
                                                                  --------------     --------------     --------------
Operating earnings...........................................          129,708            112,427            107,207
                                                                  --------------     --------------     --------------
Other income (expense):
     Investment income.......................................            1,498              1,650              1,484
     Interest expense........................................           (2,168)            (7,456)            (9,304)
     Other income (expense)..................................            1,098             (4,720)               551
                                                                  --------------     --------------     --------------
        Total other income (expense).........................              428            (10,526)            (7,269)
                                                                  --------------     --------------     --------------
Earnings before income taxes.................................          130,136            101,901             99,938
Income taxes.................................................           47,109             37,500             36,777
                                                                  --------------     --------------     --------------
Net earnings.................................................        $  83,027          $  64,401          $  63,161
                                                                  ==============     ==============     ==============

Basic net earnings per common share..........................        $    1.49          $    1.16          $    1.07
                                                                  ==============     ==============     ==============
Diluted net earnings per common share........................        $    1.46          $    1.13          $    1.07
                                                                  ==============     ==============     ==============

Basic weighted average shares outstanding....................           55,605             55,512            58,841
                                                                  ==============     ==============     ==============
Diluted weighted average shares outstanding..................           56,922             56,877            59,170
                                                                  ==============     ==============     ==============


</TABLE>









                 See notes to consolidated financial statements.

                                      F-4

<PAGE>
                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                              Accumulated
                                                                                                  Other
                                                        Common Stock     Additional           Comprehensive               Total
                                                     -------------------   Paid-In  Retained      Income    Treasury   Stockholders'
                                                       Shares    Amount    Capital  Earnings      (Loss)      Stock       Equity
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
<S>                                                 <C>          <C>    <C>        <C>         <C>         <C>          <C>

Balance, December 26, 1999.......................... 72,336,788   $ 723  $168,584   $233,146    $   50      $(148,630)   $ 253,873

Comprehensive income:
   Net earnings.....................................       --       --       --       63,161        --           --         63,161
   Change in unrealized gain on short-term
     investments, net of income taxes...............       --       --       --          --        (11)          --            (11)
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Total comprehensive income..........................       --       --       --       63,161       (11)          --         63,150
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
   Purchases of treasury stock......................       --       --       --          --         --        (43,192)     (43,192)
   Dividends declared on common stock, $0.05 per
     share..........................................       --       --       --       (2,776)       --           --         (2,776)
   Stock options exercised and related tax benefit..       --       --      2,298        --         --          4,201        6,499
   Shares issued under employee stock and 401(k)
     plans..........................................       --       --        760        --         --          2,066        2,826
   Restricted shares awarded under equity
     incentive plan, net of cancellations...........       --       --        556        --         --            943        1,499
   Unearned compensation relating to restricted
     shares.........................................       --       --        350        --         --           --            350
   Notes receivable from officers for stock sales,
     net of repayments..............................       --       --       (511)       --         --           --           (511)
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Balance, December 31, 2000.......................... 72,336,788     723   172,037    293,531        39       (184,612)     281,718

Comprehensive income:
   Net earnings.....................................       --       --       --       64,401        --           --         64,401
   Change in unrealized gain on short-term
     investments, net of income taxes...............       --       --       --          --        (25)          --            (25)
   Transition adjustment related to financial
     instruments, net of taxes......................       --       --       --          --       (250)          --           (250)
   Change in fair value of derivative instruments...       --       --       --          --     (4,220)          --         (4,220)
   Adjustment for termination of interest rate
     swap agreements................................       --       --       --          --      4,470           --          4,470
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Total comprehensive income..........................       --       --       --       64,401       (25)          --         64,376
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
   Purchases of treasury stock......................       --       --       --          --         --        (44,987)     (44,987)
   Dividends declared on common stock, $0.05 per
     share..........................................       --       --       --       (2,982)       --           --         (2,982)
   Stock options exercised and related tax benefit..       --       --      7,472        --         --         16,518       23,990
   Shares issued under employee stock and 401(k)
     plans..........................................       --       --        870        --         --          1,392        2,262
   Restricted shares awarded under equity
     incentive plan, net of cancellations...........       --       --       (254)       --         --            383          129
   Unearned compensation relating to restricted
     shares.........................................       --       --        326        --         --           --            326
   Net repayments of notes receivable from officers
     for stock sales................................       --       --        351        --         --           --            351
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Balance, December 30, 2001.......................... 72,336,788     723   180,802    354,950        14       (211,306)     325,183

Comprehensive income:
   Net earnings.....................................       --       --       --       83,027        --           --         83,027
   Change in unrealized gain on short-term
     investments, net of income taxes...............       --       --       --          --          2           --              2
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Total comprehensive income..........................       --       --       --       83,027         2           --         83,029
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
   Purchases of treasury stock......................       --       --       --          --         --        (26,113)     (26,113)
   Dividends declared on common stock, $0.06 per
     share..........................................       --       --       --       (3,323)       --           --         (3,323)
   Stock options exercised and related tax benefit..       --       --      2,796        --         --          4,495        7,291
   Shares issued under employee stock and 401(k)
     plans..........................................       --       --      2,741        --         --          2,129        4,870
   Restricted shares awarded under equity incentive
     plan...........................................       --       --          8        --         --            493          501
   Unearned compensation relating to restricted
     shares.........................................       --       --        659        --         --           --            659
   Net repayments of notes receivable from officers
     for stock sales................................       --       --        517        --         --           --            517
   Dividends paid for fractional shares.............       --       --       --          (33)       --           --            (33)
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Balance, December 29, 2002.......................... 72,336,788   $ 723  $187,523   $434,621    $   16      $(230,302)   $ 392,581
                                                     =========== ======= ========== ========= ============= ========== =============
</TABLE>
                 See notes to consolidated financial statements.

                                      F-5
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                      Fiscal Year Ended
                                                                       ----------------------------------------------
                                                                        December 29,    December 30,    December 31,
                                                                           2002            2001            2000
                                                                       --------------  --------------  --------------
<S>                                                                     <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings..................................................      $  83,027       $  64,401       $  63,161
     Adjustments to reconcile net earnings to net cash
       provided by operating activities:
        Depreciation and amortization..............................         35,110          31,780          30,208
        Amortization of intangible assets..........................            381           5,851           5,934
        Write-off of deferred financing costs......................             --           1,976              --
        Amortization of deferred financing costs...................            195             648             734
        Deferred income tax provision (benefit)....................          3,296          (4,520)            118
        Loss on disposition of restaurants and equipment...........          1,138           1,492           1,265
        Income tax benefit from exercise of stock options..........          1,905           4,807             554
     Changes in assets and liabilities (exclusive of effects of
        acquisitions):
        Receivables................................................         (3,158)         (3,067)         (8,538)
        Inventories................................................         (1,067)          2,451          (1,369)
        Prepaid and other current assets...........................         (4,358)         (3,992)            393
        Accounts payable...........................................          5,283          (4,360)          9,590
        Accrued expenses and other current liabilities.............         13,497          10,068          10,353
        Accrued income taxes.......................................           (979)           (121)           (167)
        Other......................................................          1,069          (2,323)         (1,393)
                                                                       --------------  --------------  --------------
        NET CASH PROVIDED BY OPERATING ACTIVITIES..................        135,339         105,091         110,843
                                                                       --------------  --------------  --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property and equipment...........................        (64,874)        (50,086)        (46,220)
     Acquisition of restaurants....................................        (34,250)             --              --
     Equity investment in unaffiliated company.....................             --              --          (2,000)
     Proceeds from sale of property and equipment..................            279             433           1,038
     Purchases of short-term investments...........................           (150)           (200)           (100)
     Maturities and sales of short-term investments................            350             774           1,325
                                                                       --------------  --------------  --------------
        NET CASH USED BY INVESTING ACTIVITIES......................        (98,645)        (49,079)        (45,957)
                                                                       --------------  --------------  --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Purchases of treasury stock...................................        (26,113)        (44,987)        (43,192)
     Dividends paid................................................         (3,010)         (2,779)         (2,662)
     Issuance of common stock upon exercise of stock options.......          5,386          19,183           5,945
     Shares sold under employee stock purchase plan................          2,164           1,234           1,136
     Proceeds from issuance of long-term debt......................             --          70,000              --
     Deferred financing costs relating to issuance of
       lonng-term debt.............................................             --            (577)             --
     Net payments on long-term debt................................        (22,000)        (86,801)        (16,777)
                                                                       --------------  --------------  --------------
        NET CASH USED BY FINANCING ACTIVITIES......................        (43,573)        (44,727)        (55,550)
                                                                       --------------  --------------  --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...............         (6,879)         11,285           9,336
CASH AND CASH EQUIVALENTS, beginning of period.....................         22,048          10,763           1,427
                                                                       --------------  --------------  --------------
CASH AND CASH EQUIVALENTS, end of period...........................      $  15,169       $  22,048       $  10,763
                                                                       ==============  ==============  ==============

</TABLE>

                 See notes to consolidated financial statements.

                                      F-6
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                               Fiscal Year Ended
                                                             ------------------------------------------------------
                                                               December 29,      December 30,       December 31,
                                                                   2002              2001               2000
                                                             ----------------- -----------------  -----------------
<S>                                                            <C>               <C>                <C>
Supplemental disclosures of cash flow
information:
     Cash paid during the year for:
       Income taxes....................................         $    44,983       $    40,147        $    36,278
                                                             ================= =================  =================
       Interest........................................         $     1,532       $     7,728        $     8,188
                                                             ================= =================  =================

</TABLE>

Supplemental disclosures of noncash investing and financing activities:

We issued  restricted  common stock of $1,258,000  in 2002 and $764,000,  net of
forfeitures in 2001. We had  forfeitures of restricted  common stock of $107,000
in 2000.


Disclosure of Accounting Policy:

For  purposes of the  consolidated  statements  of cash flows,  we consider  all
highly liquid  investments  purchased with a maturity of three months or less to
be cash equivalents.




                 See notes to consolidated financial statements.


                                      F-7
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Organization

Applebee's  International,  Inc. and our  subsidiaries  develop,  franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar." As of  December  29,  2002,  there  were 1,496  Applebee's  restaurants.
Franchisees operated 1,139 of these restaurants and 357 restaurants were company
operated.  These  restaurants were located in 49 states and eight  international
countries.

2.    Summary of Significant Accounting Policies

Principles of consolidation:  The consolidated  financial statements include our
accounts and the accounts of our wholly-owned  subsidiaries.  We have eliminated
all intercompany profits, transactions and balances.

Fiscal year:  Our fiscal year ends on the last Sunday of the calendar  year. The
fiscal years ended  December  29, 2002,  December 30, 2001 and December 31, 2000
contained 52, 52 and 53 weeks, respectively. These fiscal years will be referred
to as 2002, 2001 and 2000, respectively.

Short-term investments:  Short-term investments are comprised of certificates of
deposit and preferred stocks. We determine gains and losses from sales using the
specific  identification method. As of December 29, 2002, we have classified all
short-term investments as available-for-sale.

Financial  instruments:  Our financial  instruments  as of December 29, 2002 and
December  30,  2001  consist of cash  equivalents,  short-term  investments  and
long-term debt, excluding capitalized lease obligations.  The carrying amount of
cash equivalents  approximates fair value because of the short maturity of those
instruments.  We based the carrying  amount of short-term  investments on quoted
market  prices.  We  based  the  fair  value of our  long-term  debt,  excluding
capitalized lease  obligations,  on quotations made on similar issues.  The fair
value of these financial instruments  approximates the carrying amounts reported
in the consolidated balance sheets.

Interest  rate swap  agreements:  In 1998,  we entered into  interest  rate swap
agreements  to manage our  exposure to  interest  rate  fluctuations.  Effective
January 1, 2001, we adopted the provisions of Statement of Financial  Accounting
Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments and Hedging
Activities,"  as amended by SFAS Nos.  137 and 138,  which  require an entity to
recognize all  derivatives as either assets or liabilities on the balance sheet.
The  Statement  also  requires  changes  in the  fair  value  of the  derivative
instruments to be recorded in either net earnings or other comprehensive  income
depending  on their  intended  use. Our interest  rate swap  agreements  met the
criteria  for  hedge   accounting   under  the  Statement.   We  recognized  the
differential which we paid or received over the term of the swap agreements as a
component of interest expense. In November 2001, we terminated our interest rate
swap agreements in connection with the refinancing of our  then-existing  credit
facilities.  The  costs  relating  to the  termination  of these  agreements  of
$4,470,000  are  reflected in other  expense in the  consolidated  statements of
income. These interest rate swap agreements were the only derivative instruments
held during  fiscal year 2001 as defined under SFAS No. 133. We did not hold any
derivative instruments during fiscal year 2002.

Inventories:  We state  inventories  at the lower of cost,  using the  first-in,
first-out method, or market.

Pre-opening  expense:  We expense  direct  training  and other costs  related to
opening new or relocated restaurants in the month of opening.

                                      F-8
<PAGE>


Property and  equipment:  We state  property and equipment at  historical  cost.
Depreciation is provided primarily on a straight-line  method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser
of the lease term,  including  renewal options,  or the estimated useful life of
the related  asset.  The general  ranges of  original  depreciable  lives are as
follows:

o    Buildings                          20 years
o    Leasehold improvements             15-20 years
o    Furniture and equipment            2-7 years

We  record  capitalized  interest  in  connection  with the  development  of new
restaurants and amortize it over the estimated useful life of the related asset.
We capitalized  $300,000 in interest costs during 2002, $523,000 during 2001 and
$375,000 during 2000.

Software  costs:  In  accordance  with  American  Institute of Certified  Public
Accountants'  Statement of Position 98-1,  "Accounting for the Costs of Computer
Software  Developed or Obtained for Internal  Use,"  certain  costs  incurred in
connection  with  internal-use  software  projects are capitalized and amortized
over the expected useful life of the asset.

Goodwill:  Goodwill  represents the excess of cost over fair market value of net
assets we have  acquired.  Through  2001,  we  amortized  goodwill  over periods
ranging from 15 to 20 years on a straight-line basis.  Beginning in fiscal 2002,
we  ceased  amortization  of our  goodwill  in  accordance  with  SFAS No.  142,
"Goodwill and Other Intangible Assets" (see Note 6). Accumulated amortization as
of December 29, 2002 and December 30, 2001 was $30,348,000.

Impairment of long-lived  assets:  We review  long-lived  assets for  impairment
whenever  events or changes in  circumstances  indicate that the carrying amount
may not be recoverable. We analyze potential impairments of tangible assets on a
restaurant-by-restaurant  basis.  In 2000,  we adjusted  the  carrying  value of
certain  assets based on their  historical  cash flows and current  estimates of
future cash flows. The related pre-tax charge of $263,000 is included in loss on
disposition  of  restaurants  and  equipment  in the  accompanying  consolidated
statement of earnings.  We determined the estimated  fair value using  financial
information available to us.

Franchise   interest  and  rights:   Franchise  interest  and  rights  represent
allocations  of the purchase  price of our 1988  acquisition  of the  Applebee's
concept to the  restaurants  we acquired and the  franchise  agreements  that we
assumed based on an independent valuation.  We amortize the allocated costs over
the  estimated  life  of  the  restaurants  or  the  franchise  agreements  on a
straight-line basis ranging from 7 to 20 years.  Accumulated  amortization as of
December  29,  2002  was  $4,903,000,  and  as of  December  30,  2001,  it  was
$4,571,000.

Franchise income: Franchise income consists of franchise royalties and franchise
fees. We recognize  royalties on a franchisee's sales in the period in which the
sales  occur.  We also  receive  a  franchise  fee for  each  restaurant  that a
franchisee   opens.   Franchise  fees  are  deferred  until  we  have  performed
substantially all of our related  obligations as franchisor,  typically when the
restaurant  opens.   Franchise  fees,   included  in  franchise  income  in  the
consolidated statements of earnings, totaled $2,692,000 for 2002, $3,800,000 for
2001 and $3,652,000 for 2000.

Advertising   costs:  We  expense  most  advertising   costs  for  company-owned
restaurants as we incur them, but we expense the production costs of advertising
the first time the  advertising  takes  place.  Advertising  expense  related to
company-owned  restaurants was  $34,547,000  for 2002,  $32,259,000 for 2001 and
$31,014,000 for 2000.


                                      F-9
<PAGE>

Stock-based compensation:  We have adopted the disclosure provisions of SFAS No.
148,  "Accounting for Stock-Based  Compensation - Transition and Disclosure,  an
amendment  of  FASB  Statement  No.  123."  The  Statement   requires  prominent
disclosures in both annual and interim financial statements regarding the method
of accounting for stock-based employee compensation and the effect of the method
used on reported  results.  We account for stock  compensation  awards under the
intrinsic method of Accounting Principles Board ("APB") Opinion No. 25 (see Note
14).  Opinion No. 25 requires  compensation  cost to be recognized  based on the
excess,  if any,  between  the quoted  market  price of the stock at the date of
grant and the amount an  employee  must pay to acquire  the stock.  All  options
awarded  under all of our plans are granted with an exercise  price equal to the
fair market value on the date of the grant.  The  following  table  presents the
effect on our net  earnings and earnings per share had we adopted the fair value
method  of  accounting  for  stock-based   compensation   under  SFAS  No.  123,
"Accounting for Stock-Based  Compensation"  (in thousands,  except for per share
amounts).

<TABLE>
<CAPTION>

                                                                2002              2001              2000
                                                          ----------------  ----------------  ----------------
<S>                                                        <C>               <C>               <C>
      Net earnings, as reported..........................   $     83,027      $     64,401      $     63,161

      Less:  Total stock-based employee
          compensation expense determined under
          fair value based methods for all awards,
          net of related taxes...........................          6,018             4,619             2,739
                                                          ----------------  ----------------  ----------------

      Pro forma net earnings.............................   $     77,009      $     59,782      $     60,422
                                                          ================  ================  ================

      Basic net earnings per common share,
          as reported....................................   $       1.49      $       1.16      $       1.07
                                                          ================  ================  ================
      Basic net earnings, per common share,
          pro forma......................................   $       1.38      $       1.08      $       1.03
                                                          ================  ================  ================

      Diluted net earnings per common share,
          as reported....................................   $       1.46      $       1.13      $       1.07
                                                          ================  ================  ================
      Diluted net earnings per common share,
          pro forma......................................   $       1.35      $       1.05      $       1.02
                                                          ================  ================  ================
</TABLE>

The  weighted  average  fair value at date of grant for options  granted  during
2002, 2001 and 2000 was $9.66, $7.33 and $5.63 per share,  respectively,  which,
for the  purposes  of this  disclosure,  is  assumed  to be  amortized  over the
respective  vesting period of the grants. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following  weighted  average  assumptions  used for grants in 2002, 2001 and
2000: dividend yield of 0.3%, 0.4% and 0.3%,  respectively;  expected volatility
of 46.9%, 48.7% and 46.8%,  respectively;  risk-free interest rate of 2.5%, 4.2%
and  5.1%,  respectively;  and  expected  lives  of  5.2,  5.0  and  4.9  years,
respectively.

Earnings  per share:  We compute  basic  earnings  per share by dividing  income
available to common shareholders by the weighted average number of common shares
outstanding for the reporting  period.  Diluted  earnings per share reflects the
potential  dilution that could occur if holders of options or other contracts to
issue common stock  exercised or converted  their  holdings  into common  stock.
Outstanding  stock  options and  equity-based  compensation  represent  the only
dilutive  effects  on  weighted  average  shares.  The chart  below  presents  a
reconciliation between basic and diluted weighted average shares outstanding and

                                      F-10
<PAGE>


the related  earnings per share.  All references to the number of shares and per
share  amounts of common  stock have been  restated  to reflect  the stock split
declared in May 2002 (see Note 13).  All amounts in the chart,  except per share
amounts, are expressed in thousands.

<TABLE>
<CAPTION>
                                                                2002              2001              2000
                                                          ----------------  ----------------  ----------------

<S>                                                        <C>               <C>               <C>
      Net earnings.......................................   $     83,027      $     64,401      $     63,161
                                                          ================  ================  ================

      Basic weighted average shares outstanding..........         55,605            55,512            58,841
      Dilutive effect of stock options and
          equity-based compensation......................          1,317             1,365               329
                                                          ----------------  ----------------  ----------------
      Diluted weighted average shares outstanding........         56,922            56,877            59,170
                                                          ================  ================  ================

      Basic net earnings per common share................   $       1.49      $       1.16      $       1.07
                                                          ================  ================  ================
      Diluted net earnings per common share..............   $       1.46      $       1.13      $       1.07
                                                          ================  ================  ================
</TABLE>


We excluded  stock options with exercise  prices greater than the average market
price of our common stock for the  applicable  periods from the  computation  of
diluted weighted average shares outstanding. There were approximately 118,000 of
these options for 2002, 183,000 options for 2001 and 1,626,000 options for 2000.

Gift  certificates:  We  record  a  liability  in the  period  in  which  a gift
certificate  is issued and  proceeds  are  received.  As gift  certificates  are
redeemed, this liability is reduced and revenue is recognized.

Use of estimates:  The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions.  These estimates,  which
are frequently made in consultation with certain third-party advisors,  include,
but are not  limited to,  estimates  for legal  actions  and general  liability,
workers'  compensation  and  health  insurance,  long-term  incentives,  and the
collectibility of receivables.

We are  periodically  involved in various  legal  actions  arising in the normal
course of  business.  We are required to assess the  probability  of any adverse
judgments as well as the  potential  range of loss.  We  determine  the required
accruals after a review of the facts of each legal action.

The estimated liability for general liability,  workers' compensation and health
insurance  is  established  based upon  historical  claims data and  third-party
actuarial  estimates of  settlement  costs for incurred  claims.  We  recognized
expense of  $14,072,000  in 2002,  $12,222,000  in 2001 and  $10,428,000 in 2000
related to these types of insurance in our  consolidated  financial  statements.
Unanticipated changes in these factors may require us to revise our estimates.

We have various long-term employee incentive compensation plans which require us
to make estimates to determine our liability based upon projected performance of
plan  criteria.  If actual  performance  against the  criteria  differs from our
estimates  in  the  future,   we  will  be  required  to  adjust  our  liability
accordingly.

We  continually  assess the  collectibility  of our  franchise  receivables.  We
establish  our  allowance  for bad debts  based on  several  factors,  including
historical  collection  experience,  the current economic  environment and other
specific  information  available to us at the time.  The allowance for bad debts
may  change in the  future  due to  changes  in the  factors  above or other new
developments.

Estimates  and  assumptions  used by management  affect the reported  amounts of
assets and liabilities,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

                                      F-11
<PAGE>

New accounting pronouncements:  In July 2001, the Financial Accounting Standards
Board  ("FASB")  issued  SFAS No.  141,  "Business  Combinations."  SFAS No. 141
requires  that all business  combinations  be  accounted  for using the purchase
method of accounting and requires separate recognition of intangible assets that
meet certain criteria. This Statement applies to all business combinations after
June 30, 2001.

In July 2001,  the FASB  issued  SFAS No. 142,  "Goodwill  and Other  Intangible
Assets", and we adopted this Statement effective December 31, 2001. SFAS No. 142
requires that an intangible asset that is acquired shall be initially recognized
and measured based on its fair value. This Statement also provides that goodwill
should not be amortized,  but shall be tested for impairment  annually,  or more
frequently if circumstances indicate potential impairment,  through a comparison
of fair value to its carrying  amount.  In the first  quarter of fiscal 2002, we
completed the first step of the required  two-step goodwill  impairment  testing
and ceased  amortization  of  goodwill.  The first step of the  impairment  test
required us to compare  the fair value of each  reporting  unit to its  carrying
value to determine  whether there was an indication that an impairment  existed.
If there had been an indication of impairment,  we would have allocated the fair
value of the reporting  unit to its assets and  liabilities  as if the reporting
unit had been  acquired in a business  combination.  During 2002,  no impairment
losses were recorded under SFAS No. 142.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment of
Long-Lived  Assets",   which  supersedes  SFAS  No.  121,  "Accounting  for  the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
the accounting and reporting provisions of APB No. 30, "Reporting the Results of
Operations - Reporting  the Effects of Disposal of a Segment of a Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 retains many of the  provisions of SFAS No. 121, but  addresses  certain
implementation  issues  associated with that Statement.  We adopted SFAS No. 144
effective  December  31,  2001.  The  adoption  of SFAS  No.  144 did not have a
material impact on our consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
SFAS Nos. 4 and 64 required gains and losses from  extinguishment  of debt to be
classified as  extraordinary  items.  SFAS No. 145 rescinds this requirement and
stipulates that gains or losses on extinguishment of debt would have to meet the
criteria of APB Opinion No. 30 to be  classified  as an  extraordinary  item. In
addition,  any extraordinary  gains or losses on extinguishment of debt in prior
periods presented would require reclassification. SFAS No. 145 is required, with
early adoption  encouraged,  for fiscal years  beginning  after May 15, 2002. We
early  adopted  SFAS No. 145 during the fourth  quarter of fiscal  2002 and as a
result,  we  reclassified  the  $1,249,000  (net of a  related  tax  benefit  of
$727,000)  extraordinary  loss  from  the  extinguishment  of debt  in our  2001
consolidated statements of earnings to other expense and income taxes.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." This Statement requires that a liability for
a cost associated with an exit or disposal  activity be recognized only when the
liability is incurred and measured at fair value.  SFAS No. 146 is effective for
exit or disposal  activities  that are initiated  after December 31, 2002. We do
not expect the initial  adoption of this Statement to have a material  impact on
our results of operations or financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness of  Others." Interpretation No.  45 supersedes  Interpretation  No.
34, "Disclosure of Indirect  Guarantees of Indebtedness of Others," and provides
guidance to guarantors on the recognition and disclosure concerning  obligations
under certain guarantees in interim and annual financial statements. The initial
recognition and measurement  provisions of  Interpretation  No. 45 are effective
for guarantees issued or modified after December 31, 2002, and are to be applied
prospectively.   The  disclosure   requirements   are  effective  for  financial
statements  for interim or annual  periods  ending after  December 15, 2002.  We
adopted the initial  recognition  provisions of Interpretation No. 45 in January
of 2003. The disclosure  provisions of this  Interpretation are effective for us
as of December 29, 2002. The initial adoption of  Interpretation  No. 45 did not
have a material impact on our results of operations or financial position.

                                      F-12
<PAGE>

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation," and provides  alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee compensation. This Statement also amends the disclosure
requirements  of SFAS No.  123 to  require  prominent  disclosure  in annual and
interim financial statements about the effects of stock-based compensation.  The
transition  guidance  and  annual  disclosure  provisions  of SFAS  No.  148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure  provisions of this Statement are effective for
financial reports containing  financial statements for interim periods beginning
after  December 15, 2002. We have adopted the  disclosure  provision of SFAS No.
148.

Reclassifications:  We have made certain  reclassifications  to the consolidated
financial statements to conform to the 2002 presentation.

3.       Acquisition

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition. The purchase price of $34,250,000 has been allocated to
the fair value of property and equipment of $25,200,000,  goodwill of $10,100,00
and other net current liabilities of $1,050,000.

4.       Receivables

Receivables are comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                                           December 29,        December 30,
                                                                               2002                2001
                                                                         -----------------   -----------------
<S>                                                                        <C>                 <C>
      Franchise royalty, advertising and trade receivables.............     $     24,011        $     21,828
      Credit card receivables..........................................            4,724               3,769
      Franchise fee receivables........................................              418                 183
      Interest and dividends receivable................................               20                  34
      Other............................................................            2,811               1,356
                                                                         -----------------   -----------------
                                                                                  31,984              27,170
      Less allowance for bad debts.....................................            4,089               4,343
                                                                         -----------------   -----------------
                                                                            $     27,895        $     22,827
                                                                         =================   =================
</TABLE>

The bad debts  provision  totaled  $795,000  for 2002,  $1,253,000  for 2001 and
$1,376,000  for 2000. We had  write-offs  against the allowance for bad debts of
$1,049,000 during 2002, $47,000 during 2001 and $674,000 during 2000.

                                      F-13
<PAGE>


5.       Prepaid and Other Current Assets

Prepaid and other current assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                                           December 29,        December 30,
                                                                               2002                2001
                                                                         -----------------   -----------------
<S>                                                                        <C>                 <C>
      Prepaid income taxes.............................................     $      5,002        $        --
      Deferred income taxes............................................            4,601               6,702
      Other............................................................            4,905               5,558
                                                                         -----------------   -----------------
                                                                            $     14,508        $     12,260
                                                                         =================   =================
</TABLE>

6.       Goodwill and Other Intangible Assets

We adopted  SFAS No. 142,  "Goodwill  and Other  Intangible  Assets,"  effective
December  31, 2001 (see Note 2). In November of 2002,  we  completed  the annual
goodwill  impairment  test  required  under the  provisions  of SFAS No. 142. We
determined that no impairment  exists and as a result, no impairment losses were
recorded in 2002.

The changes in goodwill are summarized below (in thousands):

<TABLE>
<CAPTION>

                                                                           December 29,        December 30,
                                                                               2002                2001
                                                                         -----------------   -----------------
<S>                                                                        <C>                 <C>
      Carrying amount, beginning of the year...........................     $     78,614        $    83,265
      Reclassification from intangible assets to goodwill..............              --                 649
      Goodwill acquired................................................           10,101                 --
      Amortization.....................................................              --              (5,300)
                                                                         -----------------   -----------------
                                                                            $     88,715        $    78,614
                                                                         =================   =================
</TABLE>

The effect of the adoption of SFAS No. 142 on net income and earnings per share
is as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                                                                 Fiscal Year Ended
                                                                -----------------------------------------------------
                                                                      2002              2001               2000
                                                                ----------------  ----------------   ----------------
<S>                                                               <C>               <C>                <C>
   Net earnings, as reported...................................    $    83,027       $   64,401         $   63,161
   Goodwill amortization (net of income taxes).................            --             3,350              3,414
                                                                ----------------  ----------------   ----------------
   Net earnings, as adjusted..................................     $    83,027       $   67,751         $   66,575
                                                                ================  ================   ================

   Basic net earnings per common share, as reported............    $      1.49       $     1.16         $     1.07
   Goodwill amortization (net of income taxes).................            --              0.06               0.06
                                                                ----------------  ----------------   ----------------
   Basic net earnings per common share, as adjusted............    $      1.49       $     1.22         $     1.13
                                                                ================  ================   ================

   Diluted net earnings per common share, as reported..........    $      1.46       $     1.13         $     1.07
   Goodwill amortization (net of income taxes).................            --              0.06               0.06
                                                                ----------------  ----------------   ----------------
   Diluted net earnings per common share, as adjusted..........    $      1.46       $     1.19         $     1.13
                                                                ================  ================   ================

</TABLE>

                                      F-14
<PAGE>


Intangible  assets subject to  amortization pursuant to SFAS No. 142  consist of
franchise interest and rights and are summarized below (in thousands):

<TABLE>
<CAPTION>

                                               December 29,          December 30,
                                                   2002                  2001
                                            ------------------    ------------------
<S>                                            <C>                   <C>
Gross carrying amount.....................      $    6,371            $    6,371
Less, accumulated amortization............           4,903                 4,571
                                            ------------------    ------------------
Net.......................................      $    1,468            $    1,800
                                            ==================    ==================

</TABLE>

We expect annual  amortization  expense for all  intangible  assets for the next
five fiscal years to range from approximately $280,000 to $380,000.

7.       Other Assets

Other assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                                           December 29,        December 30,
                                                                               2002                2001
                                                                         -----------------   -----------------
<S>                                                                        <C>                 <C>
      Notes receivable.................................................     $      9,371        $      9,240
      Liquor licenses..................................................            4,445               4,426
      Minority investment in unaffiliated company, at cost.............            2,250               2,250
      Nonqualified deferred compensation plan investments..............            2,425                 --
      Deferred financing costs, net....................................              362                 547
      Other............................................................            4,497               4,611
                                                                         -----------------   -----------------
                                                                            $     23,350        $     21,074
                                                                         =================   =================
</TABLE>


We have included in notes receivable  above, an 8% subordinated note due in 2009
related to our divestiture of the Rio Bravo concept in 1999. The balance of this
notes  receivable,   including  capitalized   interest,   totaled  approximately
$8,600,000  and  $7,800,000  as of December  29,  2002 and  December  30,  2001,
respectively.

8.       Property and Equipment

Property and equipment, net, is comprised of the following (in thousands):

<TABLE>
<CAPTION>

                                                                           December 29,        December 30,
                                                                               2002                2001
                                                                         -----------------  ------------------
<S>                                                                        <C>                <C>
      Land.............................................................     $     74,415       $     67,663
      Buildings and leasehold improvements.............................          307,818            260,776
      Furniture and equipment..........................................          157,278            141,756
      Construction in progress.........................................           12,311              3,672
                                                                         -----------------  ------------------
                                                                                 551,822            473,867
      Less accumulated depreciation and capitalized
         lease amortization............................................          168,820            142,943
                                                                         -----------------  ------------------
                                                                            $    383,002       $    330,924
                                                                         =================  ==================

</TABLE>

We had property under capitalized  leases of $4,055,000 at December 29, 2002 and
December 30, 2001 which is included in buildings and leasehold improvements.  We
had accumulated amortization of such property of $1,368,000 at December 29, 2002
and  $1,129,000  at December 30, 2001.  These  capitalized  leases relate to the
buildings on certain restaurant  properties.  The land portion of the restaurant
property leases is accounted for as an operating lease.

                                      F-15
<PAGE>


We had  depreciation  and capitalized  lease  amortization  expense  relating to
property  and  equipment  of  $35,110,000  for  2002,  $31,780,000  for 2001 and
$30,208,000  for 2000. Of these  amounts,  capitalized  lease  amortization  was
$239,000 during 2002 and 2001, and $243,000 during 2000.

We lease certain of our restaurants. The leases generally provide for payment of
minimum annual rent, real estate taxes,  insurance and maintenance  and, in some
cases,  contingent  rent  (calculated  as a  percentage  of  sales) in excess of
minimum rent.  Total rental expense for all operating leases is comprised of the
following (in thousands):

<TABLE>
<CAPTION>

                                                            2002                2001                2000
                                                     ------------------  ------------------  -----------------
<S>                                                   <C>                 <C>                 <C>
      Minimum rent.................................    $       14,267      $       12,105      $       10,892
      Contingent rent..............................             1,115               1,054               1,112
                                                     ------------------  ------------------  -----------------
                                                       $       15,382      $       13,159      $       12,004
                                                     ==================  ==================  =================
</TABLE>

The present value of  capitalized  lease  payments and the future  minimum lease
payments under  noncancelable  operating leases  (including  leases executed for
sites to be  developed  in 2003) as of  December  29,  2002 are as  follows  (in
thousands):

<TABLE>
<CAPTION>

                                                                            Capitalized         Operating
                                                                              Leases             Leases
                                                                         ------------------ ------------------
<S>                                                                        <C>                <C>
      2003.............................................................     $        716       $     16,430
      2004.............................................................              741             15,770
      2005.............................................................              767             14,895
      2006.............................................................              794             14,301
      2007.............................................................              822             13,587
      Thereafter.......................................................            6,714            109,719
                                                                         ------------------ ------------------
      Total minimum lease payments.....................................           10,554       $    184,702
                                                                                            ==================
      Less amounts representing interest...............................            6,316
                                                                         ------------------
      Present value of minimum lease payments..........................     $      4,238
                                                                         ==================
</TABLE>


9.       Long-Term Debt

Long-term  debt, including  capitalized  lease  obligations, is comprised of the
following (in thousands):

<TABLE>
<CAPTION>

                                                                           December 29,      December 30,
                                                                               2002              2001
                                                                         ----------------  ----------------
<S>                                                                        <C>                <C>
     Unsecured  revolving credit  facility;  interest at LIBOR plus 1%
         or prime rate, due November 2004.............................      $    48,000       $    70,000
     Capitalized lease obligations (Note 8)...........................            4,238             4,243
     Other............................................................              325               325
                                                                         ----------------  ----------------
     Total long-term debt.............................................           52,563            74,568
     Less current portion of long-term debt...........................              377                43
                                                                         ----------------  ----------------
     Long-term debt - less current portion............................      $    52,186       $    74,525
                                                                         ================  ================
</TABLE>


In November  2001,  we  completed  the  refinancing  of our senior term loan and
working  capital  facilities.  The new  bank  credit  agreement  provides  for a
$150,000,000   three-year   unsecured   revolving  credit  facility,   of  which
$25,000,000 may be used for the issuance of letters of credit. The proceeds were
used to repay indebtedness related to our prior credit facilities.

                                      F-16
<PAGE>


The new  facility  bears  interest at either the bank's prime rate or LIBOR plus
1%, at our  option.  We are  required  to pay a  commitment  fee of 0.20% on any
unused portion of the facility. The interest rate and commitment fee are subject
to change based upon our leverage ratio.

The new facility is subject to various covenants and restrictions  which,  among
other things,  require the maintenance of stipulated fixed charge,  leverage and
indebtedness  to  capitalization   ratios,  as  defined,  and  limit  additional
indebtedness  and capital  expenditures  in excess of  specified  amounts.  Cash
dividends  are  limited to  $10,000,000  annually.  The  facility  is subject to
standard  other terms,  conditions,  covenants,  and fees.  We are  currently in
compliance with the covenants contained in our credit agreement.

As a result of the  refinancing  in 2001, we wrote-off the remaining  balance of
the deferred  financing  costs related to our prior agreement and terminated our
interest  rate swap  agreements.  The interest  rate swap  termination  costs of
$4,470,000  and the  write-off of deferred  financing  costs of  $1,976,000  are
reflected in other expense in the 2001 consolidated statement of income.

As of December 29, 2002, borrowings of $48,000,000 and standby letters of credit
totaling  $11,691,000 were outstanding  under our $150,000,000  revolving credit
facility.  We also have a standby letter of credit for $827,000 outstanding with
another financial institution.

Maturities of long-term debt,  including  capitalized lease  obligations  ending
during the years indicated, are as follows (in thousands):

     2003...........................................       $       377
     2004...........................................            48,070
     2005...........................................                98
     2006...........................................               137
     2007...........................................               188
     Thereafter.....................................             3,693
                                                          --------------
                                                           $    52,563
                                                          ==============

10.      Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are  comprised of the  following
(in thousands):

<TABLE>
<CAPTION>

                                                                            December 29,        December 30,
                                                                                2002                2001
                                                                         ------------------  -----------------
<S>                                                                        <C>                 <C>
      Compensation and related taxes....................................    $     28,688        $     22,618
      Gift certificates.................................................          21,197              18,421
      Sales and use taxes...............................................           4,812               4,184
      Insurance.........................................................           9,926               8,611
      Rent..............................................................           5,113               4,276
      Other.............................................................          14,271              13,441
                                                                         ------------------  -----------------
                                                                            $     84,007        $     71,551
                                                                         ==================  =================
</TABLE>

                                      F-17
<PAGE>

11.      Income Taxes

We, along  with our subsidiaries, file a consolidated federal income tax return.
The income tax provision consists of the following (in thousands):

<TABLE>
<CAPTION>

                                                                    2002             2001             2000
                                                               ---------------  ---------------  ---------------
<S>                                                              <C>              <C>              <C>
    Current provision:
        Federal............................................       $   39,136       $   36,571       $   31,289
        State and local....................................            4,677            5,449            5,370
    Deferred provision (benefit)...........................            3,296           (4,520)             118
                                                               ---------------  ---------------  ---------------
    Income taxes...........................................       $   47,109       $   37,500       $   36,777
                                                               ===============  ===============  ===============
</TABLE>


The  deferred income tax  provision (benefit) is  comprised of the following (in
thousands):

<TABLE>
<CAPTION>

                                                                    2002             2001            2000
                                                               ---------------  --------------- ---------------
<S>                                                              <C>              <C>             <C>
    Depreciation...........................................       $     829        $  (3,201)      $   1,311
    Other..................................................           2,467           (1,319)         (1,193)
                                                               ---------------  --------------- ---------------
    Deferred income tax provision (benefit)................           3,296           (4,520)            118
    Deferred income taxes related to change in
        unrealized gain on investments.....................              (9)             (15)             (6)
                                                               ---------------  --------------- ---------------
    Net change in deferred income taxes....................       $   3,287        $  (4,535)      $     112
                                                               ===============  =============== ===============
</TABLE>


A  reconciliation  between  the  income  tax  provision  and  the  expected  tax
determined by applying the statutory federal income tax rates to earnings before
income taxes follows (in thousands):

<TABLE>
<CAPTION>

                                                                    2002             2001            2000
                                                               ---------------  --------------- ---------------
<S>                                                             <C>              <C>             <C>
    Federal income tax at statutory rates..................      $   45,548       $   35,665      $   34,978
    Increase (decrease) to income tax expense:
        State and local income taxes, net of
           federal benefit.................................           3,247            3,127           3,502
        Employment related tax credits, net................          (2,871)          (2,582)         (2,207)
        Other..............................................           1,185            1,290             504
                                                               ---------------  --------------- ---------------
    Income taxes...........................................      $   47,109       $   37,500      $   36,777
                                                               ===============  =============== ===============

</TABLE>




                                      F-18
<PAGE>


The net current  deferred  income tax asset amounts are included in "prepaid and
other  current  assets" and the net  non-current  deferred  income tax liability
amounts are  included in "other  non-current  liabilities"  in the  accompanying
consolidated  balance sheets. The significant  components of deferred income tax
assets and  liabilities  and the related  balance sheet  classifications  are as
follows (in thousands):

<TABLE>
<CAPTION>

                                                                           December 29,          December 30,
                                                                               2002                  2001
                                                                         -----------------     -----------------
<S>                                                                        <C>                   <C>
    Classified as current:
        Allowance for bad debts.....................................        $     1,480           $     1,598
        Accrued expenses............................................              2,398                 3,328
        Other, net..................................................                723                 1,776
                                                                         -----------------     -----------------
        Net deferred income tax asset...............................        $     4,601           $     6,702
                                                                         =================     =================


    Classified as non-current:
        Depreciation................................................        $    (6,007)          $    (2,864)
        Franchise deposits..........................................                401                   557
        Other, net..................................................              2,978                   865
                                                                         -----------------     -----------------
        Net deferred income tax liability...........................        $    (2,628)          $    (1,442)
                                                                         =================     =================
</TABLE>


12.      Commitments and Contingencies

Litigation,  claims and  disputes:  We are  involved  in various  legal  actions
arising  in the  normal  course of  business.  These  matters  include,  without
limitation,  such matters as employment law related claims and disputes with two
international franchisees regarding disclosures we allegedly made or omitted. In
each instance,  we believe that we have meritorious  defenses to the allegations
made and we are vigorously defending these claims.

While the  resolution of the matters  described  above may have an impact on our
financial results for the period in which they are resolved, we believe that the
ultimate  disposition  of  these  matters  will  not,  individually  or  in  the
aggregate,  have a material  adverse  effect upon our  business or  consolidated
financial position.

Lease guarantees:  In connection with the sale of restaurants to franchisees and
other parties, we have, in certain cases,  remained  contingently liable for the
remaining lease payments. As of December 29, 2002, the aggregate amount of these
lease payments totaled approximately $24,200,000. These leases expire at various
times throughout the next several years with the final lease agreement  expiring
in 2018.  The  buyers  have  indemnified  us from any  losses  related  to these
guarantees. We have not recorded a liability as of December 29, 2002 or December
30, 2001.

Severance  agreements:  We have severance and employment agreements with certain
officers  providing for severance  payments to be made in the event the employee
resigns or is terminated  related to a change in control.  The agreements define
the  circumstances  which will constitute a change in control.  If the severance
payments had been due as of December 29,  2002,  we would have been  required to
make payments totaling approximately  $8,900,000. In addition, we have severance
and  employment   agreements  with  certain  officers  which  contain  severance
provisions  not  related to a change in  control.  Those  provisions  would have
required  aggregate  payments of  approximately  $5,500,000 if such officers had
been terminated as of December 29, 2002.


                                      F-19
<PAGE>


13.      Stockholders' Equity

On September 7, 1994, our Board of Directors  adopted a Shareholder  Rights Plan
(the "Rights  Plan") and declared a dividend,  issued on September  19, 1994, of
one Right for each outstanding  share of our Common Stock (the "Common Shares").
Stockholders may exercise their Rights if any person or group acquires more than
15% of the  outstanding  Common Shares or makes a tender offer for more than 15%
(20% if an Institutional  Investor, as defined) of our outstanding Common Shares
unless the person or group has  acquired  the shares or made the tender offer as
part of a Qualifying Offer (as defined).  If such an event occurred,  each Right
entitles  its  holder to  purchase  for $75 the  economic  equivalent  of Common
Shares, or in certain circumstances,  stock of the acquiring entity, worth twice
as much. This is true for all stockholders except the acquiror.  The Rights will
expire on  September  7, 2004  unless we redeem them  earlier.  If we redeem the
Rights before stockholders can exercise them, we will pay $0.01 per Right.

In February  2001,  our Board of Directors  authorized  the  repurchase of up to
$55,000,000 of our common stock through 2001,  subject to market  conditions and
applicable  restrictions  imposed by our then-current  credit  agreement.  As of
December 30,  2001,  we had  $20,600,000  remaining  on this  authorization.  In
February 2002, our Board of Directors  extended the 2001  authorization  through
2002. In May 2002, our Board of Directors authorized an additional repurchase of
$75,000,000  of our common stock through May 2005.  During 2002, we  repurchased
1,210,000  shares of our  common  stock at an  average  price of  $21.58  for an
aggregate  cost of  $26,100,000.  As of December  29, 2002,  we had  $69,500,000
remaining under the 2002 authorization.

On May 9, 2002, we declared a three-for-two stock split, effected in the form of
a 50% stock dividend, to shareholders of record on May 24, 2002, payable on June
11, 2002. We issued approximately  24,100,000 shares of common stock as a result
of the stock split. All references to the number of shares and per share amounts
of  common  stock  have been  restated  to  reflect  the  stock  split.  We have
reclassified  an amount equal to the par value of the number of shares issued to
common stock from retained earnings.

14.      Employee Benefit Plans

Employee stock option plans:  During 1989,  our Board of Directors  approved the
1989 Employee  Stock Option Plan (the "1989 Plan") which  provided for the grant
of  both  qualified  and  nonqualified  options  as  determined  by a  committee
appointed by the Board of Directors. At the 1995 Annual Meeting of Stockholders,
the 1989  Employee  Stock  Option  Plan  was  terminated,  and the  1995  Equity
Incentive Plan (the "1995 Plan") was approved. The termination of the 1989 Stock
Option Plan did not affect existing options which were outstanding when the plan
was terminated.

Options  under the 1989 Plan were  granted  for a term of three to ten years and
were generally exercisable one year from date of grant. The 1995 Plan allows the
committee to grant stock options,  stock appreciation  rights,  restricted stock
awards,  performance  unit awards and  performance  share awards  (collectively,
"Awards") to eligible  participants.  The 1995 Plan  authorizes the committee to
issue up to 8,100,000  shares.  Options  granted under the 1995 Plan during 1995
have a term of five to ten years and are generally  exercisable three years from
date of grant. Options granted under the 1995 Plan during 1996 through 1998 have
a term of ten years and are generally 50%  exercisable  three years from date of
grant,  25% exercisable  four years from date of grant, and 25% exercisable five
years  from date of grant.  Options  granted  under  the 1995 Plan  during  1999
through 2002 have a term of ten years and are  generally  exercisable  at either
one,  three or five  years  from the date of grant.  Subject to the terms of the
1995 Plan,  the committee has the sole  discretion to determine the employees to
whom it  grants  Awards,  the size and  types of the  Awards,  and the terms and
conditions of the Awards.

                                      F-20
<PAGE>

During 1999,  our Board of Directors  approved the 1999 Employee  Incentive Plan
(the  "1999  Plan")  which  allows the  committee  to grant  nonqualified  stock
options,  stock  appreciation  rights,  restricted stock,  performance units and
performance  shares  to  eligible  participants.  The 1999 Plan  authorizes  the
committee to issue up to 1,649,250  shares.  Options granted under the 1999 Plan
have a term of ten years and are generally  exercisable  one, two or three years
from the date of  grant.  Under  all  three  plans,  the  option  price for both
qualified and nonqualified  options cannot be less than the fair market value of
our common stock on the date the committee grants the options.

All three plans permit the committee to grant  performance  shares.  Performance
shares  represent  rights  to  receive  our  common  stock  based  upon  certain
performance  criteria.  In 2000, the committee approved  performance share plans
which have a one-year and a three-year performance period. In 2001 and 2002, the
committee approved performance share plans with a three-year performance period.
We  recorded  compensation  expense of  $865,000  in 2002,  $926,000 in 2001 and
$341,000 in 2000 related to these grants. These amounts were based on the market
price of our common stock at the end of each fiscal year.

We account  for all three  plans in  accordance  with APB  Opinion  No. 25 which
requires us to recognize  compensation cost based on the excess, if any, between
the  quoted  market  price of the stock at the date of grant  and the  amount an
employee must pay to acquire the stock. Under this method, we have recognized no
compensation cost for stock option awards.

Transactions relative to all three plans are as follows:

<TABLE>
<CAPTION>

                                              1999 Plan                     1995 Plan                    1989 Plan
                                     ----------------------------- ----------------------------- ---------------------------
                                                      Weighted                       Weighted                    Weighted
                                                       Average                        Average                    Average
                                       Number of      Exercise        Number of      Exercise     Number of      Exercise
                                        Options         Price          Options         Price       Options        Price
                                     -------------- -------------- ---------------- ------------ ------------- -------------
<S>                                   <C>               <C>         <C>               <C>          <C>            <C>
  Options outstanding at
      December 26, 1999............      186,722         $12.81       4,535,867        $11.69       300,375        $ 6.75
         Granted..................       245,250         $12.22         804,375        $12.44          --             --
         Exercised.................         --             --          (465,291)       $11.77       (53,775)       $ 8.46
         Canceled..................      (55,125)        $12.53        (505,497)       $11.41          --             --
                                     --------------                ----------------              -------------
  Options outstanding at
      December 31, 2000............      376,847         $12.47       4,369,454        $11.97       246,600        $ 6.39
         Granted..................       807,375         $15.98       1,245,697        $15.75          --             --
         Exercised.................         --             --        (1,643,713)       $11.93      (170,775)       $ 6.49
         Canceled..................      (82,950)        $13.97        (269,724)       $11.88        (1,125)       $ 6.03
                                     --------------                ----------------              -------------
  Options outstanding at
      December 30, 2001............    1,101,272         $14.93       3,701,714        $13.27        74,700        $ 6.14
         Granted..................       543,875         $22.91         904,760        $22.04          --             --
         Exercised.................      (69,750)        $12.88        (448,668)       $12.02       (17,925)       $ 6.14
         Canceled..................     (145,349)        $16.58        (433,419)       $12.67          --             --
                                     --------------                ----------------              -------------
  Options outstanding at
      December 29, 2002............    1,430,048         $17.90       3,724,387        $15.62        56,775        $ 6.14
                                     ==============                ================              =============
  Options available for grant at
      December 29, 2002............      115,800                      1,006,272                        --
                                     ==============                ================              =============

</TABLE>


                                      F-21

<PAGE>

The number of options exercisable for each plan are summarized below:

<TABLE>
<CAPTION>


                                              1999 Plan                     1995 Plan                    1989 Plan
                                     ----------------------------- ----------------------------- ---------------------------
                                                      Weighted                       Weighted                    Weighted
                                                       Average                        Average                    Average
                                        Options       Exercise         Options       Exercise      Options       Exercise
                                      Exercisable       Price        Exercisable       Price     Exercisable      Price
                                     -------------- -------------- ---------------- ------------ ------------- -------------
<S>                                     <C>            <C>            <C>              <C>         <C>             <C>
      December 31, 2000............         --             --          2,057,024        $12.38      246,600         $6.39

      December 30, 2001............         --             --            992,685        $12.31       74,700         $6.14

      December 29, 2002............      65,250         $12.93         1,284,463        $12.62       56,775         $6.14

</TABLE>

The following  table  summarizes  information  relating  to  fixed-priced  stock
options outstanding for all three plans at December 29, 2002:

<TABLE>
<CAPTION>

                                                  Options Outstanding                       Options Exercisable
                                    ------------------------------------------------  --------------------------------
                                                        Average         Weighted                          Weighted
                                       Weighted          Remaining         Average                          Average
                                        Number        Contractual       Exercise          Number       Exercise Price
        Range of Exercise Prices     Outstanding          Life            Price        Exercisable
       ---------------------------  ---------------  ---------------  --------------  ---------------  ---------------
<S>                                   <C>              <C>              <C>             <C>               <C>

        1989 Plan:
         $   6.13    to $   6.15          56,775        1.6 years        $   6.14           56,775         $   6.14
                                    ===============                                   ===============

        1995 Plan:
         $   9.27    to $   9.64         169,471        5.5 years        $   9.29           81,172         $   9.29
         $  11.08    to $  11.45         154,411        5.3 years        $  11.17          101,286         $  11.17
         $  12.30    to $  12.67       1,340,801        5.5 years        $  12.48          875,059         $  12.58
         $  13.44    to $  15.98         970,445        8.1 years        $  14.63          214,447         $  14.21
         $  20.20    to $  25.50       1,089,259        9.0 years        $  21.98           12,499         $  22.07
                                    ---------------                                   ---------------
         $   9.27    to $  25.50       3,724,387        7.2 years        $  15.62        1,284,463         $  12.62
                                    ===============                                   ===============

        1999 Plan:
         $   9.86    to $  11.14          23,625        7.6 years        $  10.36             --               --
         $  12.30    to $  15.98         717,628        7.8 years        $  14.04           65,250         $  12.93
         $  17.07    to $  26.39         688,795        9.1 years        $  22.18             --               --
                                    ---------------                                   ---------------
         $   9.86    to $  26.39       1,430,048        8.4 years        $  17.90           65,250         $  12.93
                                    ===============                                   ===============
</TABLE>

Restricted stock awards:  During 2001 and 2002, the committee granted restricted
stock  awards to certain  officers  and key  employees.  These  awards vest over
either a two-year or three-year  period. We recorded  unearned  compensation for
the  market  value of the  stock at the date of grant,  and we showed  this as a
reduction  to  stockholders'  equity in the  accompanying  consolidated  balance
sheets.  We are  amortizing  unearned  compensation  ratably to expense over the
vesting period.  Accordingly,  we recognized  compensation  expense of $659,000,
$326,000 and $350,000 in 2002, 2001 and 2000, respectively.

Nonqualified  deferred compensation plan: In 2002, we entered into a rabbi trust
agreement to protect the assets of the nonqualified  deferred  compensation plan
for certain of our employees.  Each participant's  account is comprised of their
contribution, our matching contribution and each participant's share of earnings
or losses in the plan.  In  accordance  with  EITF No.  97-14,  "Accounting  for
Deferred  Compensation  Arrangements Where Amounts Are Held in a Rabbi Trust and
Invested,"  the  accounts  of the rabbi trust are  reported in our  consolidated
financial  statements.  As of December 29, 2002, our consolidated  balance sheet
includes  the  investments  in other  assets and the  offsetting  obligation  is
included  in other  non-current  liabilities.  The  deferred  compensation  plan
investments  are  considered  trading  securities and are reported at fair value
with the  realized  and  unrealized  holding  gains and losses  related to these
investments,  as  well  as the  offsetting  compensation  expense,  recorded  in
operating income.


                                      F-22
<PAGE>


Employee retirement plans: During 1992, we established a profit sharing plan and
trust in accordance  with Section  401(k) of the Internal  Revenue Code. We make
matching contributions of 50% of employee contributions not to exceed 4.0% of an
employee's  compensation in any year. We make our contributions in shares of our
common stock.  Our  contributions  vest at the rate of 20% after the  employee's
second year of service,  60% after three years of service,  80% after four years
of service and 100% after five years of service.  During 1994, we  established a
non-qualified defined contribution  retirement plan for key employees.  In 2002,
this plan was terminated and a new nonqualified  deferred  compensation plan was
established  (see   nonqualified   deferred   compensation   plan  above).   Our
contributions under these plans were $1,697,000 in 2002,  $1,441,000 in 2001 and
$1,170,000 in 2000.

Employee  stock  purchase  plan:  During 1996, we  established an employee stock
purchase plan in accordance  with Section 423 of the Internal  Revenue Code. The
plan was approved at the 1997 Annual Meeting of  Stockholders.  The plan allowed
employees  to  purchase  shares of our common  stock at a 10%  discount  through
payroll  deductions  through 2000. In 2001, the plan was amended to increase the
discount to 15%. The Board has authorized  900,000 common shares under the plan.
Employees  purchased  117,932 shares under this plan during 2002,  93,810 during
2001 and 104,595 shares during 2000.

Employee stock ownership plan: Our Board of Directors approved an employee stock
ownership plan in January 1997. We  contributed  to this plan  completely at our
discretion.  Our  contributions to the plan were $200,000 for 2000 and were made
in shares of our common stock.  During 2001, we  terminated  the employee  stock
ownership  plan and did not make any  contributions  to the plan.  The assets of
this plan were transferred to the 401(k) plan.

15.      Related Party Transactions

We had a policy which allowed us to loan  executives  money to be used to invest
in our stock to meet guidelines which require  executives to own certain amounts
of our stock.  This policy was  terminated in June of 2002 and no new loans will
be granted.  We had loans that were  granted  prior to the  termination  of this
policy  outstanding  for a total  of  $99,000  as of  December  29,  2002 to two
officers and $615,000 to three officers as of December 30, 2001. These loans had
interest  rates ranging from 4.7% to 6.8% and are  collateralized  by the stock.
These loans are  reflected as a reduction to additional  paid-in  capital in our
consolidated balance sheets.

As of December 29, 2002 and December 30, 2001, we had a loan outstanding with an
interest rate of 5% to an officer for moving related assistance in the amount of
$310,000. This officer made an interest and principal payment in March 2003. The
remaining principal of $210,000,  as well as accrued interest, is due in October
2004.


                                      F-23
<PAGE>


16.      Quarterly Results of Operations (Unaudited)

The  following  presents  the  unaudited   consolidated   quarterly  results  of
operations  for 2002 and 2001.  During the fourth  quarter of 2001,  we incurred
costs relating to the termination of interest rate swap agreements of $4,470,000
and  a  write-off  of  previously   deferred  financing  costs  related  to  the
refinancing of our prior credit facilities of $1,976,000, which are reflected in
other  expense.  All  amounts,  except  per  share  amounts,  are  expressed  in
thousands.

<TABLE>
<CAPTION>

                                                                                   2002
                                                      ---------------------------------------------------------------
                                                                           Fiscal Quarter Ended
                                                      ---------------------------------------------------------------
                                                        March 31,        June 30,       September 29,    December 29,
                                                          2002             2002             2002             2002
                                                      -------------    -------------    -------------   -------------
<S>                                                    <C>              <C>              <C>             <C>
Revenues:
     Company restaurant sales.......................    $174,973         $178,893         $182,807        $187,943
     Franchise income...............................      24,840           25,484           26,033          25,823
                                                      -------------    -------------    -------------   -------------
        Total operating revenues....................     199,813          204,377          208,840         213,766
                                                      -------------    -------------    -------------   -------------
Cost of company restaurant sales:
     Food and beverage..............................      47,407           47,073           47,765          50,179
     Labor..........................................      57,457           58,881           60,054          61,874
     Direct and occupancy...........................      42,872           44,291           47,009          47,595
     Pre-opening expense............................         335              305              792             542
                                                      -------------    -------------    -------------   -------------
        Total cost of company restaurant sales......     148,071          150,550          155,620         160,190
                                                      -------------    -------------    -------------   -------------
General and administrative expenses.................      19,246           19,553           20,049          22,290
Amortization of intangible assets...................         138               52               95              96
Loss (gain) on disposition of restaurants
     and equipment..................................         294              727              458            (341)
                                                      -------------    -------------    -------------   -------------
Operating earnings..................................      32,064           33,495           32,618          31,531
                                                      -------------    -------------    -------------   -------------
Other income (expense):
     Investment income..............................         397              381              346             374
     Interest expense...............................        (633)            (555)            (414)           (566)
     Other income (expense).........................         101              482              513               2
                                                      -------------    -------------    -------------   -------------
        Total other income (expense)................        (135)             308              445            (190)
                                                      -------------    -------------    -------------   -------------
Earnings before income taxes........................      31,929           33,803           33,063          31,341
Income taxes........................................      11,654           12,338           12,068          11,049
                                                      -------------    -------------    -------------   -------------
Net earnings........................................    $ 20,275         $ 21,465         $ 20,995        $ 20,292
                                                      =============    =============    =============   =============

Basic net earnings per common share.................    $   0.36         $   0.38         $   0.38        $   0.37
                                                      =============    =============    =============   =============
Diluted net earnings per common share...............    $   0.35         $   0.37         $   0.37        $   0.36
                                                      =============    =============    =============   =============

Basic weighted average shares outstanding...........      55,878           55,872           55,654          55,212
                                                      =============    =============    =============   =============
Diluted weighted average shares outstanding.........      57,327           57,374           56,714          56,512
                                                      =============    =============    =============   =============

</TABLE>



                                      F-24
<PAGE>

<TABLE>
<CAPTION>



                                                                                   2001
                                                      ---------------------------------------------------------------
                                                                           Fiscal Quarter Ended
                                                      ---------------------------------------------------------------
                                                        April 1,          July 1,       September 30,    December 30,
                                                          2001             2001             2001             2001
                                                      -------------    -------------    -------------   -------------
<S>                                                    <C>              <C>              <C>             <C>
Revenues:
     Company restaurant sales.......................    $160,143         $162,035         $164,238        $164,703
     Franchise income...............................      22,234           23,885           23,787          23,319
                                                      -------------    -------------    -------------   -------------
        Total operating revenues....................     182,377          185,920          188,025         188,022
                                                      -------------    -------------    -------------   -------------
Cost of company restaurant sales:
     Food and beverage..............................      43,305           43,633           44,489          44,550
     Labor..........................................      50,900           51,533           52,864          53,699
     Direct and occupancy...........................      40,759           41,104           41,459          41,643
     Pre-opening expense............................         135              132              632             802
                                                      -------------    -------------    -------------   -------------
        Total cost of company restaurant sales......     135,099          136,402          139,444         140,694
                                                      -------------    -------------    -------------   -------------
General and administrative expenses.................      17,166           18,085           19,197          18,487
Amortization of intangible assets...................       1,463            1,462            1,463           1,463
Loss on disposition of restaurants and equipment....         187              571              329             405
                                                      -------------    -------------    -------------   -------------
Operating earnings..................................      28,462           29,400           27,592          26,973
                                                      -------------    -------------    -------------   -------------
Other income (expense):
     Investment income..............................         357              415              479             399
     Interest expense...............................      (2,357)          (2,043)          (1,831)         (1,225)
     Other income (expense).........................          90              385              322          (5,517)
                                                      -------------    -------------    -------------   -------------
        Total other expense.........................      (1,910)          (1,243)          (1,030)         (6,343)
                                                      -------------    -------------    -------------   -------------
Earnings before income taxes........................      26,552           28,157           26,562          20,630
Income taxes........................................       9,771           10,361            9,776           7,592
                                                      -------------    -------------    -------------   -------------
Net earnings........................................    $ 16,781         $ 17,796         $ 16,786        $ 13,038
                                                      =============    =============    =============   =============

Basic net earnings per common share.................    $   0.30         $   0.32         $   0.30        $   0.23
                                                      =============    =============    =============   =============
Diluted net earnings per common share...............    $   0.30         $   0.31         $   0.30        $   0.23
                                                      =============    =============    =============   =============

Basic weighted average shares outstanding...........      55,674           55,371           55,366          55,636
                                                      =============    =============    =============   =============
Diluted weighted average shares outstanding.........      56,442           56,808           56,820          57,163
                                                      =============    =============    =============   =============

</TABLE>

                                      F-25
<PAGE>



17.      Subsequent Event

On January 20, 2003,  we reached an agreement  with a franchisee  to acquire the
operations and assets of 11 Applebee's restaurants located in Illinois, Indiana,
Kentucky and Missouri for $23,200,000 in cash at closing, subject to adjustment.
The  acquisition  of the  restaurants  is anticipated to close late in the first
quarter of 2003,  subject to obtaining  operating licenses and other third-party
consents.







                                      F-26
<PAGE>

                         APPLEBEE'S INTERNATIONAL, INC.
                                  EXHIBIT INDEX

   Exhibit
    Number                           Description of Exhibit
---------------  ---------------------------------------------------------------

       3.1       Certificate  of  Incorporation,  as amended,  of the Registrant
                 (incorporated  by reference to Exhibit 3.1 of the  Registrant's
                 Annual  Report on Form 10-K for the fiscal year ended  December
                 31, 1995).

       3.2       Restated and Amended By-laws of the Registrant (incorporated by
                 reference to Exhibit 3.2 of the  Registrant's  Annual Report on
                 Form 10-K for the fiscal year ended December 29, 1996).

       4.1       Shareholder  Rights Plan contained in Rights Agreement dated as
                 of September 7, 1994,  between Applebee's  International,  Inc.
                 and Chemical Bank, as Rights Agent  (incorporated  by reference
                 to Exhibit 4.1 of the  Registrant's  Annual Report on Form 10-K
                 for the fiscal year ended December 25, 1994).

       4.2       Amendment  dated  May  13,  1999  to  Shareholder  Rights  Plan
                 contained  in Rights  Agreement  dated as of September 7, 1994,
                 between  Applebee's  International,  Inc. and Chemical Bank, as
                 Rights Agent  (incorporated  by reference to Exhibit 4.1 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended June 27, 1999).

       4.3       Amendment  dated December 12, 2002 to  Shareholder  Rights Plan
                 contained  in Rights  Agreement  dated as of September 7, 1994,
                 between  Applebee's  International,  Inc. and Chemical Bank, as
                 Rights Agent.

       4.4       Certificate of Adjustment of Shareholder  Rights Plan contained
                 in Rights  Agreement  dated as of  September  7, 1994,  between
                 Applebee's  International,  Inc. and Chemical  Bank,  as Rights
                 Agent, as amended  (incorporated by reference to Exhibit 4.1 of
                 the  Registrant's  Quarterly Report on Form 10-Q for the fiscal
                 quarter ended September 29, 2002).

       4.5       Certificate of the Voting Powers, Designations, Preferences and
                 Relative  Participating,  Optional and Other Special Rights and
                 Qualifications of Series A Participating  Cumulative  Preferred
                 Stock  of  Applebee's  International,   Inc.  (incorporated  by
                 reference to Exhibit 4.2 of the  Registrant's  Annual Report on
                 Form 10-K for the fiscal year ended December 25, 1994).

       10.1      Indemnification Agreement, dated March 16, 1988, between Abe J.
                 Gustin, Jr. and Applebee's International, Inc. (incorporated by
                 reference to Exhibit 10.2 of the Registrant's  Annual Report on
                 Form 10-K for the fiscal year ended December 25, 1994).

       10.2      Indemnification Agreement, dated March 16, 1988, between Johyne
                 Reck  and  Applebee's  International,   Inc.  (incorporated  by
                 reference to Exhibit 10.3 of the Registrant's  Annual Report on
                 Form 10-K for the fiscal year ended December 25, 1994).

       10.3      Form  of  Applebee's  Development  Agreement  (incorporated  by
                 reference to Exhibit 10.4 of the Registrant's  Annual Report on
                 Form 10-K for the  fiscal  year  ended  December  31,  2000 and
                 Exhibit 10.1 of the Registrant's  Quarterly Report on Form 10-Q
                 for the fiscal quarter ended July 1, 2001).


                                      E-1
<PAGE>



   Exhibit
    Number                           Description of Exhibit
---------------  ---------------------------------------------------------------

       10.4      Form  of  Applebee's   Franchise  Agreement   (incorporated  by
                 reference to Exhibit 10.5 of the Registrant's  Annual Report on
                 Form 10-K for the  fiscal  year  ended  December  31,  2000 and
                 Exhibit 10.1 of the Registrant's  Quarterly Report on Form 10-Q
                 for the fiscal quarter ended July 1, 2001).

       10.5      Schedule of Applebee's  Development and Franchise Agreements as
                 of December 29, 2002.

       10.6      Revolving  Credit  Agreement  dated  as  of  November  5,  2001
                 (incorporated  by reference to Exhibit 10.6 of the Registrant's
                 Annual  Report on Form 10-K for the fiscal year ended  December
                 30, 2001).

       10.7      Asset Purchase Agreement between Applebee's International, Inc.
                 and  Apple  Capitol  Group,  LLC  dated  as of  July  16,  2002
                 (incorporated  by reference to Exhibit 10.2 of the Registrant's
                 Quarterly  Report on Form  10-Q for the  fiscal  quarter  ended
                 September 29, 2002).

       10.8      Assignment Agreement between Lehman Brothers Holdings, Inc. and
                 Applebee's  International,  Inc.  dated as of  October  1, 2002
                 (incorporated  by reference to Exhibit 10.3 of the Registrant's
                 Quarterly  Report on Form  10-Q for the  fiscal  quarter  ended
                 September 29, 2002).

                 Management Contracts and Compensatory Plans or Arrangements

       10.9      1995  Equity  Incentive  Plan,  as  amended   (incorporated  by
                 reference to Exhibit 10.7 of the Registrant's  Annual Report on
                 Form 10-K for the fiscal year ended December 30, 2001).

       10.10     Employee  Stock  Purchase  Plan,  as amended  (incorporated  by
                 reference to Exhibit 10.10 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 31, 2000,  Exhibit
                 10.2 of the Registrant's  Quarterly Report on Form 10-Q for the
                 fiscal quarter ended September 30, 2001 and Exhibit 10.1 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended March 30, 2002).

       10.11     1999 Management and Executive  Incentive Plan  (incorporated by
                 reference to Exhibit 10.13 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 26, 1999).

       10.12     Nonqualified Deferred Compensation Plan.

       10.13     1999  Employee  Incentive  Plan,  as amended  (incorporated  by
                 reference to Exhibit 10.11 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 30, 2001).

       10.14     2001 Senior Executive Bonus Plan ___ (incorporated by reference
                 to Exhibit 10.12 of the Registrant's Annual Report on Form 10-K
                 for the fiscal year ended December 30, 2001).

       10.15     Employment  Agreement,  dated  January 27, 1994,  with Lloyd L.
                 Hill   (incorporated  by  reference  to  Exhibit  10.4  of  the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended March 27, 1994).


                                      E-2
<PAGE>



   Exhibit
    Number                           Description of Exhibit
---------------  ---------------------------------------------------------------

       10.16     Severance and Noncompetition Agreement, dated January 27, 1994,
                 with Lloyd L. Hill  (incorporated  by reference to Exhibit 10.5
                 of the  Registrant's  Quarterly  Report  on Form  10-Q  for the
                 fiscal quarter ended March 27, 1994).

       10.17     Employment  Agreement,  dated  March 1,  1995,  with  George D.
                 Shadid  (incorporated  by  reference  to  Exhibit  10.3  of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended March 26, 1995).

       10.18     Agreement  Regarding  Employment  (incorporated by reference to
                 Exhibit 10.1 of the Registrant's  Quarterly Report on Form 10-Q
                 for the fiscal quarter ended September 30, 2001).

       10.19     Employment  Agreement  dated  August 7,  2002,  with  Steven K.
                 Lumpkin  (incorporated  by  reference  to  Exhibit  10.1 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended September 29, 2002).

       10.20     Memorandum of Understanding dated October 5, 2002 with Louis A.
                 Kaucic.

       10.21     Form of Indemnification Agreement (incorporated by reference to
                 Exhibit  10.29 of the  Registrant's  Annual Report on Form 10-K
                 for the fiscal year ended December 25, 1994).

       10.22     Schedule of parties to Indemnification Agreement.

       10.23     Previous Form of Change in Control  Agreement  (incorporated by
                 reference to Exhibit 10.2 of the Registrant's  Quarterly Report
                 on Form 10-Q for the fiscal  quarter  ended March 29, 1998) and
                 schedule of parties thereto.

       10.24     Previous Form of Change in Control  Agreement  (incorporated by
                 reference to Exhibit 10.23 of the Registrant's Annual Report on
                 Form 10-K for the fiscal  year  ended  December  27,  1998) and
                 schedule of parties thereto.

       10.25     Current Form of Change in Control  Agreement  (incorporated  by
                 reference to Exhibit 10.2 of the Registrant's  Quarterly Report
                 on Form 10-Q for the  fiscal  quarter  ended  July 1, 2001) and
                 schedule of parties thereto.

       21        Subsidiaries of Applebee's International, Inc.

       23.1      Consent of Deloitte & Touche LLP.

       24        Power of Attorney (see page 29 of the Form 10-K).

       99.1      Certification  of  Chairman  and Chief  Executive  Officer  and
                 Executive Vice President and Chief Financial Officer.



                                      E-3